Combined tail estimation using censored data and expert information
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Abstract: We study tail estimation in Pareto-like settings for datasets with a high percentage of randomly right-censored data, and where some expert information on the tail index is available for the censored observations. This setting arises for instance naturally for liability insurance claims, where actuarial experts build reserves based on the specificity of each open claim, which can be used to improve the estimation based on the already available data points from closed claims. Through an entropy-perturbed likelihood we derive an explicit estimator and establish a close analogy with Bayesian methods. Embedded in an extreme value approach, asymptotic normality of the estimator is shown, and when the expert is clair-voyant, a simple combination formula can be deduced, bridging the classical statistical approach with the expert information. Following the aforementioned combination formula, a combination of quantile estimators can be naturally defined. In a simulation study, the estimator is shown to often outperform the Hill estimator for censored observations and recent Bayesian solutions, some of which require more information than usually available. Finally we perform a case study on a motor third-party liability insurance claim dataset, where Hill-type and quantile plots incorporate ultimate values into the estimation procedure in an intuitive manner.
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Cites work
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Cited in
(10)- Threshold selection and trimming in extremes
- Trimmed extreme value estimators for censored heavy-tailed data
- Estimation and inference about tail features with tail censored data
- Matrix Mittag-Leffler distributions and modeling heavy-tailed risks
- Estimation of extremes for heavy-tailed and light-tailed distributions in the presence of random censoring
- Expert Kaplan–Meier estimation
- Conditional tail moment and reinsurance premium estimation under random right censoring
- Informed censoring: the parametric combination of data and expert information
- Asymptotically unbiased estimation of the extreme value index under random censoring
- Prediction intervals for future Pareto record claims
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