טכניון מכון טכנולוגי לישראל
הטכניון מכון טכנולוגי לישראל - בית הספר ללימודי מוסמכים  
M.Sc Thesis
M.Sc StudentAmitay Kauffmann
SubjectConstructing the FEER Index - Forecasting Extreme
Events Risk
DepartmentDepartment of Industrial Engineering and Management
Supervisors Professor Reisman Haim
Dr. Zahavi Gal
Full Thesis textFull thesis text - English Version


Abstract

In 2008, the S&P500 market index had an aggregated loss of 30.16% during  three selected trading days. Unfortunately, benchmark risk measures VaR  and CVaR didn’t forecast these hazards. Consequently, we witness a growing  interest in risk measures, sensitive to high moments and heavy tail risk.

Such measures were proposed by Aumann-Serrano (2008) and Foster-Hart  (2009). As an extension of the latter, we construct the FEER Index, a downside  risk measure ”Forecasting Extreme Events Risk”, satisfying desirable  risk measure properties, particularly sensitivity to higher lower partial moments  of the return distribution. We present a closed-form solution of the  FEER Index as a function of VaR and CVaR, and show that the FEER Index can be dynamically calibrated to the market, becoming a live seismograph  for market catastrophes.