Financial Risk Manager Part 2

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The CRO of an investment bank is preparing to lead a panel discussion at a risk management conference on estimating extreme risk measures. The CRO plans to discuss the main branches of univariate extreme value theory as well as the characteristics of the generalized extreme value (GEV) approach and the peaks-over-threshold (POT) approach. Which of the following statements would be correct for the CRO to include in the discussion?

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The block maxima approach can avoid the data loss issues that sometimes arise under the POT approach, which constitutes an advantage of GEV compared to POT.

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The additional parameter that is included in the POT approach, but not the GEV approach, is a location parameter that measures the central tendency of the extreme loss distribution.

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An advantage of the POT approach is that the distribution of extreme losses over a high threshold is assumed to always have the same form regardless of the distribution of all losses.

A drawback of the GEV approach is that the parameter estimates describing the extreme loss distribution suffer from the fact that the choice of the threshold over which losses are considered extreme is subjective.