Estimation of the probable maximum loss based on extreme value theory for stock returns


  • Marcin Fałdziński Nicolaus Copernicus University in Torun



Probable maximum loss is a measure coming from the insurance market, where is applied to insurance portfolio analysis. This correspond to the 20-80 rule, which states that 20% of the individual claims are responsible for more than 80% of the total claim amount in a well defined portfolio. The main aim of the presented paper is estimation of the probable maximum loss for stock returns which are treated as portfolios of securities. It turns out that probable maximum loss is a useful tool for risk analysis or/and diagnostic purposes at capital markets, but we have to be aware of its drawbacks.


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How to Cite

Fałdziński, M. (2009). Estimation of the probable maximum loss based on extreme value theory for stock returns. Equilibrium. Quarterly Journal of Economics and Economic Policy, 2(1), 51–59.



Applications of dynamic econometrics