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Hi David - I have a couple of questions on EVT.

- In the Quant notes, page 110, under GEV - there is a sentence underneath the formula -"In this expression, a lower tail index corresponds to a fatter tail". I understand that the tail index, epsilon, is a measure of the "fat-tailness" of the distribution. In Wilmott and in the BT notes it is stated that Frechet distribution is the most relevant as it fits a fat-tail distribution. In Wilmott, for a Ferchet distribution epsilon is given to be greater than zero. So does this imply that epsilon must be greater than zero, but for it to exhibit more fat-tails the epsilon should be closer to zero,but positive?

- For the Peak over thresholds, could you please explain the role that epsilon and beta. What is beta here and how does it help/what role does it play in fitting a distribution on the tail?

- In the BT spreadsheet for EVT - why does the GPD cdf begin after zero? and why does the cdf formula does not refer to column B (Xi's)?

Thanks for your help again.

Regards,

Ashim

- In the Quant notes, page 110, under GEV - there is a sentence underneath the formula -"In this expression, a lower tail index corresponds to a fatter tail". I understand that the tail index, epsilon, is a measure of the "fat-tailness" of the distribution. In Wilmott and in the BT notes it is stated that Frechet distribution is the most relevant as it fits a fat-tail distribution. In Wilmott, for a Ferchet distribution epsilon is given to be greater than zero. So does this imply that epsilon must be greater than zero, but for it to exhibit more fat-tails the epsilon should be closer to zero,but positive?

- For the Peak over thresholds, could you please explain the role that epsilon and beta. What is beta here and how does it help/what role does it play in fitting a distribution on the tail?

- In the BT spreadsheet for EVT - why does the GPD cdf begin after zero? and why does the cdf formula does not refer to column B (Xi's)?

Thanks for your help again.

Regards,

Ashim

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