Extreme Value Theory: Potential and Limitations as an Integrated Risk Management Tool
by Paul Embrechts of ETH Zurich
Abstract: Extreme Value Theory (EVT) is currently very much in the focus of interest in quantitative risk management. Originally conceived as the mathematical (probabilistic/statistical) theory for analysing rare events, it recently entered the risk management stage. In this paper I discuss some of the issues (mainly, but not exclusively) related to Value-at-Risk methodology. I try to come up with a virtues versus limitations assessment, both from an academic as well as from an end-user point of view.
Published in: Derivatives Use, Trading & Regulation, Vol. 6, No 1, (January 2000), pp. 449-456.