Lerby Ergun is Senior Economist in the Financial Markets Department of the Bank of Canada. His primary research focusses on measuring risk in financial markets and recently started focussing on information flows in OTC markets. Before joining the Bank, Lerby worked as a Research Officer at the Systemic Risk Centre in the LSE. He received his PhD from Erasmus University Rotterdam, on the topic “Fat Tail in Financial Markets”.
Worst-case analysis is used among financial regulators in the wake of the recent financial crisis to gauge the tail risk. We provide insight into worst-case analysis and provide guidance on how to estimate it. We derive the bias for the non-parametric heavy-tailed order statistics and contrast it with the semi-parametric extreme value theory (EVT) approach.