Extremes in Economics and the Economics of Extremes

Within econometrics, probability theory and statistics, an enormous literature exists on the topic of Extremes in Economics. See for instance Mikosch [47] and Klüppelberg [36] in this volume, and the numerous references listed in those contributions. For a long time, econometric research has shown that, for instance logarithmic returns of financial data are non–normal. Extremal moves up or down do occur much more regularly than standard (normal based) models make us believe. Extreme Value Theory (EVT) has become a standard toolkit within quantitative finance useful for describing these non– normal phenomena. Statistically exploring and stochastically modelling such extremes in financial data is however a rather different task from answering the question: “Given a financial market where such extremes occur, how are they to be handled from an economic point of view?”. Perhaps the most