Parametric Approaches (II): Extreme Value (FRM Part 2 2023 - Book 1 - Chapter 3)

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After completing this reading you should be able to:
- Explain the importance and challenges of extreme values in risk management.
- Describe extreme value theory (EVT) and its use in risk management.
- Describe the peaks-over-threshold (POT) approach.
- Compare and contrast generalized extreme value and POT.
- Evaluate the tradeoffs involved in setting the threshold level when applying the generalized Pareto (GP) distribution.
- Explain the importance of multivariate EVT for risk management
0:00 Introduction
2:31 Learning Objectives
3:45 What are Extreme Values?
4:47 Challenges of Extreme Values
7:11 Extreme Value Theory (EVT) in Finance
9:54 Illustrating Block Maxima
11:36 Cases of the GEV Distribution
12:56 Standardized Fréchet and Gumbel Probability Density Functions
15:19 Interpreting GEV Quantiles
15:57 Gumbel and Fréchet VaR
18:48 The Peaks-Over-Threshold (POT) Approach
22:49 What Happens as u Gets Large?
24:42 VaR and Expected Shortfall
25:36 Importance of Multivariate EVT for Risk Management

[@user-vm9ud8vd4s]

very nice, clear and concise with great visual explanation🎉

[@analystprep]

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[@nikhiltrivedi9778]

Thank you, Professor James.
this video was of great help.
---Love from India :)

[@analystprep]

You're most welcome!

[@Alex-yi7ck]

It definitely helped me. Thank you professor.
-Respect from South Korea-

[@analystprep]

You're welcome!

[@amandixit2750]

lucid and Concise. Keep up the good work!

[@analystprep]

Thanks, will do!

[@LifelongStudentBelgium]

So much easier to walk through the chapter with your detailed explanation. Would have stared for hours

[@analystprep]

You're very welcome! If you like our video lessons, it would be appreciated if you could take 2 minutes of your time to leave us a Google review using this link: g.page/r/CQIlM78xSg01EB0/review

[@willarn1]

Great summary

[@analystprep]

Thank you!

[@hazemgalal8562]

keep going prof.james
amazing content & description
and we need series about operational risk
good luck prof

[@analystprep]

You're welcome. The operational risk chapter is coming right after finishing credit risk.

[@ameliedeclercq8631]

Hi, I was wondering how you use the model on data. I need to use EVT to estimate the VaR of some data (of stock market spreads to be precise), but in this clip you only use sample size as an empirical parameter. Could you explain me how I should do that?

[@camillechen345]

very helpful video

[@analystprep]

Glad you think so!