Extreme Value Theory Futures Risk Management

The article discusses future's extreme price behavior and uses the range-based CARR model to estimate the intra-day'price's heteroskedasticity. It also compared with the McNeil &Frey's (2000) result which combines with the GARCH model and extreme theory. S&P 500Stock Index Futures traded on CME, and Sweet Crude Oil Futures traded on NYMEX are used. Both the in-sample back- testing and out-of-sample expect ed loss indicate that the CARR model and extreme value theory performs better than McNeil & Frey (2000) conditional extreme value theory.Furthermore, we use Osaka Stock Exchange (OSE) launched the Nikkei 225 stock index futures and the Singapore International Monetary Exchange (SIMEX) launched Japan's Nikkei 225 index futures as a sample to analyze the extreme value theory, combined with CARR model is able to avoid the futures price impact of price limits. Empirical results, McNeil and Frey (2000) used GARCH model and estimate the extreme value theory often exceed the price limit of price changes, the more unreasonable. In contrast, extreme value theory combined CARR model is more reasonable estimate of price changes. The results support the CARR model with extreme value theory to set the application in the futures margin superiority.Finally, based on the above results, this article suggests the futures should be considered when setting bond futures days of amplitude information and the use of extreme value theory combined CARR model to capture real-time price information, to develop dynamic margin system, the immediate reaction in real time changes in risk.