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GPD Tail VaR (Peaks Over Threshold)

Hard · risk_management · Quant Researcher interview question · extreme_value_theory, peaks_over_threshold, generalized_pareto, var_estimation, risk_management

Extreme Value Theory (EVT) provides a framework for modeling rare events in financial markets, crucial for estimating high-quantile risk measures like Value-at-Risk (VaR). The Peaks-Over-Threshold (POT) method fits a Generalized Pareto Distribution (GPD) to losses exceeding a high threshold to better capture tail risk. This approach overcomes the limitations of normal distribution assumptions for extreme market movements. Task Implement the function gpd_tail_var(losses: list, threshold: float,