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Practical Methods of Financial Engineering and Risk Management
book

Practical Methods of Financial Engineering and Risk Management

by Rupak Chatterjee
August 2014
Intermediate to advanced content levelIntermediate to advanced
388 pages
9h 44m
English
Apress
Content preview from Practical Methods of Financial Engineering and Risk Management

CHAPTER 8

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Power Laws and Extreme Value Theory

The commonly used risk measures of VaR and CVaR almost always deal with the tails of a distribution. A risk manager often needs to report the 99% and 99.9% VaR and CVaR. He or she rarely needs to find the 60% VaR or CVaR. This indicates that much of the full distribution is ignored for risk purposes, even though a lot of effort may have gone into creating the whole distribution of future gains and losses of some asset. This prompts the question, “Why not simply have a methodology to create only the tail of a distribution and ignore everything else?” Extreme value theory (EVT) is a field of probability ...

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Publisher Resources

ISBN: 9781430261346Purchase book