Measuring the Risk of Extreme Events

Event risk is described by the distribution of excessive financial losses due to broad, abrupt shocks. We consider the measurement of event risk in the context of the classical, axiomatic definition of risk measures initiated by Artzner, Delbaen, Eber & Heath (1999). The class of utility-based risk measures is shown to be particularly suited for the detection and quantification of event risk. We illustrate this using standard extreme value distributions.