Illustrates an example of Frechet distribution

Question

Illustrates an example of Frechet distribution?

Answer 1

Fit a Frechet distribution to the twenty eight annual maxima of the SP500 index returns since 1960 to October 16th 1987, the business day before the ’87 crash. In that dataset the major fall was ‘just’ 6.7 percent. Now calculate the probability of different returns. For illustration, a 50-year return level is the level that on average must only be exceeded in one year every 50 years. The Frechet distribution provides the result as 24 percent. One business day later the index falls 20.4 Frechet.