On the Estimation of Bivariate Return Curves for Extreme Values
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In the multivariate setting, defining extremal risk measures is important in many contexts, such as finance, environmental planning and structural engineering. In this paper, we review the literature on extremal bivariate return curves, a risk measure that is the natural bivariate extension to a return level, and propose new estimation methods based on multivariate extreme value models that can account for both asymptotic dependence and asymptotic independence. We identify gaps in the existing literature and propose novel tools for testing and validating return curves and comparing estimates from a range of multivariate models. These tools are then used to compare a selection of models through simulation and case studies. We conclude with a discussion and list some of the challenges.
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