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EXTREME VALUE THEORY IN FINANCE: A SURVEY
Author(s) -
Rocco Marco
Publication year - 2014
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/j.1467-6419.2012.00744.x
Subject(s) - extreme value theory , economics , econometrics , value at risk , expected shortfall , asset (computer security) , value (mathematics) , stress testing (software) , financial economics , actuarial science , risk management , statistics , mathematics , finance , computer science , computer security , programming language
Extreme value theory is concerned with the study of the asymptotic distribution of extreme events, that is to say events which are rare in frequency and huge in magnitude with respect to the majority of observations. Statistical methods derived from it have been employed increasingly in finance, especially for risk measurement. This paper surveys some of those main applications, namely for testing different distributional assumptions for the data, for Value‐at‐Risk and Expected Shortfall calculations, for asset allocation under safety‐first type constraints, and for the study of contagion and dependence across markets under conditions of stress.