Exploring Policyholder Behaviour in the Extreme Tail: A Process of Modelling and Discovery with Extreme Value Theory

- Demonstrates that Extreme Value Theory (EVT) can be used as a tool to model policyholder behaviour in the extreme tail, an area where judgment has been constantly applied
- Applies EVT to the study of variable annuity dynamic lapse behaviour in the extreme tail as an example
- A variety of copulas are fitted to find the best model that describes the extremal dependency between ITM and lapse rate. The actual data combined with data simulated by the model in the extreme tail is then used to fit a dynamic lapse formula which displays different characteristics compared to the traditional methods.