Extreme Value Theory as a Risk Management Tool

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Extreme Value Theory as a Risk Management Tool

by Paul Embrechts of ETH Zürich,
Sidney I. Resnick of Cornell University, and
Gennady Samorodnitsky of Cornell University

April 1999

Abstract: The financial industry, including banking and insurance, is undergoing major changes. The (re)insurance industry is increasingly exposed to catastrophic losses for which the requested cover is only just available. Due to an increasing complexity of financial instruments, sophisticated risk management tools have to be put into place. The securitization of risk and alternative risk transfer highlight the convergence of finance and insurance at the product level. Extreme value theory plays an important methodological role within the above.

Published in: North American Actuarial Journal, Vol. 3, No. 2, (April 1999), pp. 30-41.

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