In this paper, Extreme value theory (EVT) is applied in estimating low quantiles of P/L distribution and the results are compared to common VaR methodologies. The fundamental theory behind EVT is built, and peaks-over-threshold method is used for modeling the tail of the distribution of losses...

Quantitative investment strategies are often selected from a broad class of candidate models estimated and tested on historical data. Standard statistical technique to prevent model overfitting such as out-sample back-testing turns out to be unreliable in the situation when selection is based on...