Credit
Risk Management  Economic
Capital Calculation and Allocation
Enterprise Risk Management
 Equity Modeling
 Extreme Value Models
Health Risk Management
 Policyholder Behavior
in the Tail
Pricing for Risk 
Risk Based Capital Covariance
 Risk Management Metrics
Extreme Value Models
Bob Guth, Leader
Goals
In today's business environment, extreme events are commanding more attention.
These events have very low frequencies (e.g., onceacentury) but extraordinarily
high costs. Research has shown that the Normal Distribution, which is
pervasively used in actuarial work, underestimates the frequency of these
events, sometimes significantly. Consequently, actuaries need to have
more expertise in this aspect of risk management.
The Extreme Value Models subgroup of the Risk Management Task
Force has two goals:
 Increase the actuarial profession's awareness of these extreme
risks and of the pitfalls of using simplistic methods to assess these
risks.
 Provide education and tools needed to quantify, manage, and price
the risks associated with extremevalued outcomes.
In order to accomplish these goals, the subgroup will:
 Identify, develop, and publicize resources for actuaries concerning
the quantification, management, and pricing of relevant risks.
 Investigate the statistical distributions describing the frequency
of extremevalued outcomes, including nonparametric and nonsymmetric
distributions.
 Monitor and/or sponsor research in this area.
 Provide continuing education opportunities about applications of
extremevalued risk measurement and management.
Recent
Activities
The
Extreme Value Models subgroup helped organize a session on Extreme Value
Theory at the 2004 Enterprise Risk Management Symposium. A description
of the sessions, Track E, as well as the handouts are available
online.
In 2003 we sponsored a contest encouraging actuaries to consider
possible, but perceivedtobe unlikely, events. Read the winning
entry, a thought provoking essay on negative interest rates by Ken
Faig!
Sample
Applications
Steve Craighead has developed an Excel workbook that can be used to become
familiar with calculations stemming from Extreme Value Theory. To begin
applying these techniques to your applications follow this link.
For instructions on use of the workbook follow this link.
Jonathan T Wang has prepared a discussion on using extreme value theory to model operational risk.
Click here for details. *
^{PowerPoint}
Documents &
Links (all
files are in .pdf format unless otherwise indicated)
Bibliography
Reviewed Materials
Other Materials
Rare or Surprising
Events
Some Context
Surprising Events that Have Happened
Surprising Events that May Happen
Recent Meeting
Minutes:
EVM Minutes –
August 22, 2005
EVM Minutes –
June 29, 2005
 PowerPoint*
EVM Minutes –
May 24, 2005
EVM Minutes –
April 12, 2005
EVM Minutes –
October 11, 2004
* To download PowerPoint File right click
the link and click "Save Target As..."
Links to EVM related
sites:
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