2023 Australasian Actuarial Education and Research Symposium

Xinyue Man

Central South University, China; University of New South Wales

Extreme value analysis of investment losses coupled with exogenous shocks

This is joint work with Qihe Tang

Consider a company who undertakes a risky project that carries the potential for investment losses and is additionally vulnerable to exogenous shocks. These unpredictable shocks pose challenges for both the company and the regulator in accurately foreseeing their impact, potentially leading to an underestimation of the solvency capital when employing traditional approaches. In this paper, we utilize a stylized model to conduct an extreme value analysis of such a risky project under various extreme scenarios, aiming to gain a quantitative understanding of the role of exogenous shocks in driving possible catastrophic losses. As an application, we derive asymptotic estimates for the value at risk and expected shortfall of the total loss from the risky project. Furthermore, we conduct extensive numerical studies to examine the accuracy of the obtained approximations.