Purpose – Short option positions carry significant risk of losses well in excess of 100 per cent of the initial option price. Margin requirements associated with such positions are therefore considerable. The purpose of this paper is to develop a methodology for calculating margin...

Purpose – Short option positions carry significant risk of losses well in excess of 100 per cent of the initial option price. Margin requirements associated with such positions are therefore considerable. The purpose of this paper is to develop a methodology for calculating margin...

This paper develops an unconditional and conditional extreme value approach to calculating value at risk (VaR), and shows that the maximum likely loss of financial institutions can be more accurately estimated using the statistical theory of extremes. The new approach is based on the...

This article presents a comprehensive study of continuous time GARCH (generalized autoregressive conditional heteroskedastic) modeling with the thintailed normal and the fat‐tailed Student's‐t and generalized error distributions (GED). The study measures the degree of mean reversion in...

This study examines derivatives use of foreign exchange, interest rate, and commodities risk by nonfinancial firms across multiple industries, using data from 1995 to 2001. This work considers the interaction of a firm's risk exposures, derivatives use, and real operations simultaneously, and...

Recent advances in econometric methodology and newly available sources of data are used to examine empirically the performance of the various extreme‐value volatility estimators that have been proposed over the past two decades. Overwhelming support is found for the use of extreme‐value...

This article introduces a two‐factor‐discrete‐time‐stochastic‐volatility model that allows for departures from linearity in the conditional mean and incorporates serially correlated unexpected news, asymmetry, and level effects into the definition of conditional volatility of the short...

This article tests the performance of a wide variety of well‐known continuous time models—with particular emphasis on the Black, Derman, and Toy (1990; henceforth BDT) term structure model—in capturing the stochastic behavior of the short term interest rate volatility. Many popular interest...

This article explores the time‐series behavior of correlations of returns, volatilities of returns, volatilities of volatilities, and correlations of volatilities in domestic and international financial markets such as equity (indices), interest rates (bonds), and currency (exchange rates)...