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Linear Correlation and EVT: Properties and Caveats
Authors:Embrechts  Paul
Abstract:Due to the current credit crisis, critical questions are beingasked concerning some of the quantitative methods used in riskmanagement under the Basel II proposals. In this paper I havegiven a critical look at Extreme Value Theory and Copulas. Boththeir potential applications and the possible caveats are discussed,and this mainly with the subprime crisis as a background.
Keywords:copulas  credit risk  dependence modeling  extreme value theory  linear correlation  subprime crisis  quantitative risk management  value-at-risk
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