What is Extreme Value Theory?
Extreme value theory (EVT) is a branch of applied statistics developed to address problems associated with extreme outcomes. EVT focuses on the unique aspects of extreme values, which are from “central tendency” statistics. The central-limit theorem here does not play a role. Extreme value theorems provide a template for estimating the parameters used to describe extreme movements.
Why are Extreme Values and Extreme Value Theory important?
In statistics, dealing with extreme values is critical because extreme values can impact the estimates significantly. Hence, any data series cannot be used for estimation before dealing with extreme values, usually done using extreme value theory.