Research on the Application of Extremum Theory in the Measurement of Extreme Volatility Risk in Financial Market

DOI

10.2991/978-94-6463-835-6_43How to use a DOI?

Keywords

risk measurement; extreme value theory; financial market; extreme volatility

Abstract

In the context of increasing complexity and volatility in global financial markets, in-depth analysis and precise measurement of extreme market fluctuations have become a critical task in risk management. Traditional methods, which assume that returns follow a normal distribution, fall short when describing actual market conditions where returns often exhibit fat-tail and leptokurtic characteristics. Extreme value theory, as a specialized statistical method for analyzing extreme events, offers a new perspective on the study of extreme market fluctuations. This paper comprehensively examines the application of extreme value theory in extreme market fluctuations from a risk measurement standpoint. It begins with an overview of the research background and significance, emphasizing the impact of extreme fluctuations on financial stability. The core principles of extreme value theory, including generalized extreme value distributions and generalized Pareto distributions, are then detailed. The empirical section collects long-term data from stock, foreign exchange, and other markets, preprocesses the data, and constructs tables to illustrate data characteristics, including return rates and extreme event data. The application of extreme value theory provides specific guidelines for analyzing extreme market fluctuations. Research findings indicate that extreme value theory can effectively capture extreme market fluctuations, offering more accurate tools for risk measurement. The conclusion summarizes the results, highlights the limitations of applying extreme value theory, and looks forward to future research directions, aiming to provide a reference for financial market risk management and regulation, addressing complex extreme fluctuation scenarios, and maintaining financial market stability.

Copyright

© 2025 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Xinyi Wang
PY  - 2025
DA  - 2025/09/17
TI  - Research on the Application of Extremum Theory in the Measurement of Extreme Volatility Risk in Financial Market
BT  - Proceedings of the 2025 3rd International Academic Conference on Management Innovation and Economic Development (MIED 2025)
PB  - Atlantis Press
SP  - 407
EP  - 416
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-835-6_43
DO  - 10.2991/978-94-6463-835-6_43
ID  - Wang2025
ER  -