Markets of risk and the theory of the extreme values: empirical study of cases / Mercados de risco e a teoria dos valores extremos: estudo empÃrico de casos

AUTOR(ES)
DATA DE PUBLICAÇÃO

2004

RESUMO

The objective of this work is to infer the behavior of extremes values of a continuous random variable, either extreme values in the down left tail of the probability density function (pdf), like the great daily losses in financial markets investments, or extreme values in the pdf upper right tail, like some great claim sizes in the insurance industry. The Extreme Value Theory (EVT) plays a fundamental role in modeling rare events associated with great losses and very small probabilities of occurrence. One of the great concerns in the risk management is to develop analytic techniques to foresee those exceptions. In that way, the tails of the pdf rare losses are of great importance in evaluating that kind of risk, turning the EVT a valuable tool for an accurate evaluation of high losses risk. In this work, the estimates of expected maximum losses in financial series and in insurance payments were investigated using: i) the traditional methods, that used all the sample data in fitting the random variable pdf; and, ii) the Extreme Value methodology, particularly the Generalized Extreme Value distribution (GEV), that used only a set of maximum values detected in the sample data in estimating the pdf of expected maximum losses. The findings of this study indicate, firstly, an important underestimation of extreme losses with the traditional methods, mainly in the pdf tails limits, and, secondly, that the GEV distribution proved to be more efficient in forecasting the extreme losses in all the analyzed series.

ASSUNTO(S)

extreme value theory value at risk valor em risco teoria dos valores extremos economia

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