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A Chief Risk Officer (CRO) expresses concern about the adequacy of the company's current risk assessment models in handling potential significant and unexpected losses. To address this issue, the CRO proposes the adoption of Extreme Value Theory (EVT). Considering the application of EVT and its focus on evaluating loss distributions that exceed a specified threshold, which of the following statements is correct?
A
As the threshold value is increased, the distribution of losses over a fixed threshold value converges to a generalized Pareto distribution.
B
If the tail parameter value of the generalized extreme-value (GEV) distribution goes to infinity, then, the GEV essentially becomes a normal distribution.
C
To apply EVT, the underlying loss distribution must be either normal or lognormal.
D
The number of exceedances decreases as the threshold value decreases, which causes the reliability of the parameter estimates to increase.