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Extreme Events and Extreme Value Theory (EVT) [19]

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Bullet points include: Pricing or performing a risk analysis on reinsurance for extreme losses. Wind storm losses. If we can identify the shape of the tail of the distribution then we can: Analyse expected loss for a given tranched exposure (e.g. a reinsurance layer between an excess / deductible and an upper limit on coverage), Estimate expected loss by first fitting a Generalised Pareto Distribution to the tail and then calculating the conditional mean of this distribution. The market price of such an exposure may be calculated by scaling up the expected loss in line other benchmark transactions for which price data is available

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