Pareto Models for Risk Management

  • Arthur CharpentierEmail author
  • Emmanuel Flachaire
Part of the Dynamic Modeling and Econometrics in Economics and Finance book series (DMEF, volume 27)


The Pareto model is very popular in risk management, since simple analytical formulas can be derived for financial downside risk measures (value-at-risk, expected shortfall) or reinsurance premiums and related quantities (large claim index, return period). Nevertheless, in practice, distributions are (strictly) Pareto only in the tails, above (possible very) large threshold. Therefore, it could be interesting to take into account second-order behavior to provide a better fit. In this article, we present how to go from a strict Pareto model to Pareto-type distributions. We discuss inference, derive formulas for various measures and indices, and finally provide applications on insurance losses and financial risks.


EPD Expected shortfall Financial risks GPD Hill Pareto Quantile Rare events Regular variation Reinsurance Second order Value-at-risk 

JEL Classification

C13 C18 C46 G22 G32 


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© Springer Nature Switzerland AG 2021

Authors and Affiliations

  1. 1.Université du Québec à Montréal (UQAM)Montréal (Québec)Canada
  2. 2.Aix-Marseille Université AMSE, CNRS and EHESSMarseilleFrance

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