Modelling Catastrophic Risk In International Equity Markets: An Extreme Value Approach
Source: Munich Personal Repec Archive
This letter uses the Block Maxima Extreme Value approach to quantify catastrophic risk in international equity markets. Risk measures are generated from a set threshold of the distribution of returns that avoids the pitfall of using absolute returns for markets exhibiting diverging levels of risk. From an application to leading markets, the letter finds that the Nikkei is more prone to catastrophic risk than the FTSE and Dow Jones Indexes. Tail returns can be catastrophic for investors and accurate modelling of these is paramount. This letter uses the Block Maxima Extreme Value approach to quantify catastrophic risk for investors with long and short positions in international equity markets.