ABSTRACT

Extreme value theory deals with the study of the asymptotic behavior of extreme observations of a random variable. Extreme events refer to phenomena that have relatively extreme high or low degree of magnitude while rare events refer to phenomena that have relatively very low frequency of occurrence. The use of the term relative in describing both extreme and rare events is important because, as will be discussed later, the relative difference between the magnitudes and frequency of occurrence of these events is the primary reason why they are difficult to analyze and manage. Extreme and rare events and phenomena have relatively very low frequency of occurrence and at the same time have relatively extreme high or extreme low degree of magnitude. There are some notable examples of extreme and rare events. One of the most notable is the global economic downturn.