Application of extreme value theory in commodity markets

Extreme value theory (EVT) is the theory of modelling and measuring events which occur with very small probability. This implies its usefulness in risk modelling as risky events happen with low probability. In our study, we have focused on the prices of Gold and Silver which have been one of the preferred investments over the centuries. Initially, univariate analysis is carried out to model the extreme values of gold and silver separately. In order to assess the joint behavior, bivariate analysis is also carried out on the extreme values. Thus, Extreme value theory is used to know the characteristics of the distribution of these precious metals thus enabling us to choose a better model by focusing on the tails of the distribution.