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Rethinking Valuation and Pricing Models by Greg N. Gregoriou, Christian Hoppe, Carsten Wehn

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28

Tail Risk Reduction Strategies

Lerby M. Ergun and Philip A. Stork∗∗

Duisenberg School of Finance and Erasmus University of Rotterdam

∗∗VU University Amsterdam

Chapter Outline

28.1 Introduction

This chapter combines two strands of literature: (i) The measurement of tail risk with extreme value theory (EVT) and (ii) the use of technical analysis or systematic trading rules. The first strand, on EVT, is gaining popularity rather quickly. We refer to Novak and Beirlant (2006) for a recent article on the use of EVT to predict the size of a stock market crash. They estimate value at risk ...

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