Risk management under extreme events

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48 Scopus citations


This article presents two applications of extreme value theory (EVT) to financial markets: computation of value at risk (VaR) and cross-section dependence of extreme returns (i.e., tail dependence). We use a sample comprised of the United States, Europe, Asia, and Latin America. Our main findings are the following. First, on average, EVT gives the most accurate estimate of VaR. Second, tail dependence of paired returns decreases substantially when both heteroscedasticity and serial correlation are filtered out by a multivariate GARCH model. Both findings are in agreement with previous research in this area for other financial markets.

Original languageEnglish
Pages (from-to)113-148
Number of pages36
JournalInternational Review of Financial Analysis
Issue number2
StatePublished - 2005


  • Extremal dependence
  • Extreme value theory
  • Value at risk


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