Evaluating risk measures, premiums, and capital allocation based on dependent multi-losses is a notoriously difficult task. In this paper, we demonstrate how this can be successfully accomplished when losses follow the multivariate Pareto distribution of the second kind, which is an attractive...

Over the last three decades, the world economy has been facing stock market crashes, currency crisis, the dot-com and real estate bubble burst, credit crunch and banking panics. As a response, extreme value theory (EVT) provides a set of ready-made approaches to risk management analysis....

Do tail events in the oil market trigger extreme responses by the clean-energy financial market (and vice versa)? This paper investigates the relationship between oil price and clean-energy stock with a novel methodology, namely extreme events study. The aim is to investigate an asymmetry effect...

This paper extends the extreme downside correlation (EDC) and extreme downside hedge (EDH) methodology to model the interdependence in the sensitivity of assets to the downside risk of other financial assets under severe firm-level and market conditions. The model is applied to analyze both...

Pareto processes are suitable to model stationary heavy-tailed data. Here, we consider the auto-regressive Gaver–Lewis Pareto Process and address a study of the tail behavior. We characterize its local and long-range dependence. We will see that consecutive observations are asymptotically tail...

One of the key components of financial risk management is risk measurement. This typically requires modeling, estimating and forecasting tail-related quantities of the asset returns’ conditional distribution. Recent advances in the financial econometrics literature have developed several...

According to the last proposals of the Basel Committee on Banking Supervision, banks or insurance companies under the advanced measurement approach (AMA) must use four different sources of information to assess their operational risk capital requirement. The fourth includes ’business...

The appropriate choice of a threshold level, which separates the tails of the probability distribution of a random variable from its middle part, is considered to be a very complex and challenging task. This paper provides an empirical study on various methods of the optimal tail selection in...