Book description
A guide to the growing importance of extreme value risk theory, methods, and applications in the financial sector
Presenting a uniquely accessible guide, Extreme Events in Finance: A Handbook of Extreme Value Theory and Its Applications features a combination of the theory, methods, and applications of extreme value theory (EVT) in finance and a practical understanding of market behavior including both ordinary and extraordinary conditions.
Beginning with a fascinating history of EVTs and financial modeling, the handbook introduces the historical implications that resulted in the applications and then clearly examines the fundamental results of EVT in finance. After dealing with these theoretical results, the handbook focuses on the EVT methods critical for data analysis. Finally, the handbook features the practical applications and techniques and how these can be implemented in financial markets. Extreme Events in Finance: A Handbook of Extreme Value Theory and Its Applications includes:
• Over 40 contributions from international experts in the areas of finance, statistics, economics, business, insurance, and risk management
• Topical discussions on univariate and multivariate case extremes as well as regulation in financial markets
• Extensive references in order to provide readers with resources for further study
• Discussions on using R packages to compute the value of risk and related quantities
The book is a valuable reference for practitioners in financial markets such as financial institutions, investment funds, and corporate treasuries, financial engineers, quantitative analysts, regulators, risk managers, large-scale consultancy groups, and insurers. Extreme Events in Finance: A Handbook of Extreme Value Theory and Its Applications is also a useful textbook for postgraduate courses on the methodology of EVTs in finance.
François Longin, PhD, is Professor in the Department of Finance at ESSEC Business School, France. He has been working on the applications of extreme value theory to financial markets for many years, and his research has been applied by financial institutions in the risk management area including market, credit, and operational risks. His research works can be found in scientific journals such as The Journal of Finance. Dr. Longin is currently a financial consultant with expertise covering risk management for financial institutions and portfolio management for asset management firms.
Table of contents
- Cover
- Financial Engineering and Econometrics
- Title Page
- Copyright
- About the Editor
- About the Contributors
- Chapter 1: Introduction
-
Chapter 2: Extremes Under Dependence—Historical Development and Parallels with Central Limit Theory
- 2.1 Introduction
- 2.2 Classical (I.I.D.) Central Limit and Extreme Value Theories
- 2.3 Exceedances of Levels, kth Largest Values
- 2.4 CLT and EVT for Stationary Sequences, Bernstein's Blocks, and Strong Mixing
- 2.5 Weak Distributional Mixing for EVT, D(un), Extremal Index
- 2.6 Point Process of Level Exceedances
- 2.7 Continuous Parameter Extremes
- References
- Chapter 3: The Extreme Value Problem in Finance: Comparing the Pragmatic Program with the Mandelbrot Program
- Chapter 4: Extreme Value Theory: An Introductory Overview
-
Chapter 5: Estimation of the Extreme Value Index
- 5.1 Introduction
- 5.2 The Main Limit Theorem Behind Extreme Value Theory
- 5.3 Characterizations of the Max-Domains of Attraction and Extreme Value Index Estimators
- 5.4 Consistency and Asymptotic Normality of the Estimators
- 5.5 Second-order Reduced-bias Estimation
- 5.6 Case Study
- 5.7 Other Topics and Comments
- References
- Chapter 6: Bootstrap Methods in Statistics of Extremes
-
Chapter 7: Extreme Values Statistics for Markov Chains with Applications to Finance and Insurance
- 7.1 Introduction
- 7.2 On the (pseudo) Regenerative Approach for Markovian Data
- 7.3 Preliminary Results
- 7.4 Regeneration-based Statistical Methods for Extremal Events
- 7.5 The Extremal Index
- 7.6 The Regeneration-Based Hill Estimator
- 7.7 Applications to Ruin Theory and Financial Time Series
- 7.8 An Application to the CAC40
- 7.9 Conclusion
- References
- Chapter 8: Lévy Processes and Extreme Value Theory
- Chapter 9: Statistics of Extremes: Challenges and Opportunities
- Chapter 10: Measures of Financial Risk
- Chapter 11: On the Estimation of the Distribution of Aggregated Heavy-Tailed Risks: Application to Risk Measures
- Chapter 12: Estimation Methods for Value at Risk
- Chapter 13: Comparing Tail Risk and Systemic Risk Profiles for Different Types of U.S. Financial Institutions
- Chapter 14: Extreme Value Theory and Credit Spreads
- Chapter 15: Extreme Value Theory and Risk Management in Electricity Markets
- Chapter 16: Margin Setting and Extreme Value Theory
- Chapter 17: The Sortino Ratio and Extreme Value Theory: An Application to Asset Allocation
- Chapter 18: Portfolio Insurance: The Extreme Value Approach Applied to the CPPI Method
- Chapter 19: The Choice of the Distribution of Asset Returns: How Extreme Value Can Help?1
- Chapter 20: Protecting Assets Under Non-Parametric Market Conditions
- Chapter 21: EVT Seen by a Vet: A Practitioner's Experience on Extreme Value Theory
- Chapter 22: The Robotization of Financial Activities: A Cybernetic Perspective
-
Chapter 23: Two Tales of Liquidity Stress
- 23.1 The French Money Market Fund Industry. How history has Shaped a Potentially Vulnerable Framework
- 23.2 The 1992–1995 Forex Crisis
- 23.3 Four Mutations Paving the Way for Another Meltdown
- 23.4 The Subprime Crisis Spillover. How Some MMFs were Forced to Lock and Some Others Not
- 23.5 Conclusion. What Lessons can be Drawn from these Two Tales?
- Further Reading
- Chapter 24: Managing Operational Risk in the Banking Business – An Internal Auditor Point of View
- Chapter 25: Credo Ut Intelligam
- Chapter 26: Bounded Rationalities, Routines, and Practical as well as Theoretical Blindness: On the Discrepancy Between Markets and Corporations
- Name Index
- Subject Index
- Financial Engineering and Econometrics
- End User License Agreement
Product information
- Title: Extreme Events in Finance
- Author(s):
- Release date: October 2016
- Publisher(s): Wiley
- ISBN: 9781118650196
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