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This presentation, based partly on the book 'Extreme Events: Robust Portfolio Construction in the Presence of Fat Tails', explores
- Why return serives are often 'fat tailed' (and what this means)
- Extreme Value Theory (EVT) and possible refinements
- Modelling joint fat-taied behaviour
- Lessons for portfolio construction.

[as pdf]

Slides

1	Techniques for Handling Extreme Events in the Context of Portfolio Construction
2	Background
3	Agenda
4	Agenda
5	Modelling fat tails for individual risks
6	Many (most?) investment return series are ‘fat-tailed’
7	Why are return series often fat-tailed?
8	Distributional mixtures of Normal distributions
9	Impact of time-varying volatility
10	Impact of time-varying volatility: longer-term data
11	Crowded trades and leverage
12	Selection effects (1)
13	Selection effects (2)
14	Agenda
15	Extreme Value Theory (EVT)
16	Restatement of EVT results
17	Challenges
18	Tail Weighted Maximum Likelihood Estimation (TWMLE)
19	Agenda
20	Joint fat-tailed behaviour
21	Copulas: a well-trodden (mathematical) path
22	Factor identification
23	Fundamental data limitations: the ‘fine structure’ problem
24	Agenda
25	Portfolio construction
26	Portfolio construction: sensitivities
27	Regime switching
28	Impact on asset allocation problem
29	Avoiding undue complexity?
30	Summary
31	Important Information

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