Extreme Value Theory in Financial Risk Management: The Random Walk Approach

摘要

Insurance companies, financial institutions and any other business firms should conduct what we call self evaluation on whether they are playing within the risk free boundaries by applying the random walk technique in determining the extreme points. This paper will concentrate on evaluating the memory less timeT at which the company is assumed to reach the highest return, or at which the company will achieve weak minimum return. At either point, it is said to be unsafe for the profit oriented firms to operate. The extreme value theory is highly employed in Actuarial Industry particularly in financial risk management when the company or firm wants to set out the risk free demarcations to operate or play around, and in the situations where the Company wants to conduct self performance evaluation, making forecast over a period of time and making any Economical based decisions. The author believe that, there is a more and detailed information contained in the text that follows, and it is his sincere hope that this paper will increase motivation of researchers interested in a more broadly based risk management in finance.