Extreme Value Theory

Extreme Value Theory (EVT) is a statistical approach used to analyze the maximum or minimum values in a dataset over a specified period. It helps predict the likelihood of rare events, like floods, earthquakes, or stock market crashes, by examining past extremes. EVT identifies patterns and estimates the probability of future extremes, allowing individuals and organizations to prepare for scenarios that are unlikely but potentially catastrophic. By focusing on these outliers rather than average events, EVT provides insights crucial for risk management in various fields, including finance, insurance, and environmental science.