medium · Frm Part 2 Market Risk
A portfolio has a GEV-distributed annual maximum loss with ξ=0.5.
If the bank decides to hold economic capital equal to the 99.9th percentile of this annual distribution, which moment is the most critical for the stability of this estimate?
- The mean, as it must be finite for capital calculation.
- The variance, which is exactly at the point of divergence.
- The kurtosis, which is the definition of the tail thickness.
- The skewness, as it determines the direction of the tail.
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