Extreme value theory (EVT) provides valuable insight about the tails of return distributions. Which of the following statements about EVT and its applications is incorrect?
A. The peaks over threshold (POT) approach requires the selection of a reasonable threshold, which then determines the number of observed exceedances; the threshold must be sufficiently high to apply the theory, but sufficiently low so that the number of observed exceedances is a reliable estimate.
B. EVT highlights that distributions justified by the central limit theorem (e.g., normal) can be used for extreme value estimation.
C. EVT estimates are subject to considerable model risk, and EVT results are often very sensitive to the precise assumptions made.
D. Because observed data in the tails of distribution is limited, EV estimates can be very sensitive to small sample effects and other biases.