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Extreme Value Theory

FRM Exam, Risk Management

This lesson is part 6 of 6 in the course Introduction to Quantitative Finance

Extreme value theory (EVT) aims to remedy a deficiency with value at risk (i.e., it gives no information about losses that exceed the VaR) and glaring weakness of delta normal value at risk (VaR): the dreaded-fat tails. The key is the idea that the tail has it’s own “child” distribution.

This video explains the extreme value theory.

This video is developed by David from Bionic Turtle.

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In this Course

  • What is Volatility?
  • What is the Square Root Rule?
  • Why Use Lognormal Returns in Finance (Stock Prices)?
  • How to Scale Autocorrelated Returns?
  • Arithmetic Vs. Geometric Stock Returns
  • Extreme Value Theory

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