Bayesian estimation of the threshold of a generalised Pareto distribution for heavy-tailed observations
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Publication:2398080
DOI10.1007/S11749-016-0501-7zbMATH Open1422.62111arXiv1604.01268OpenAlexW2339026745WikidataQ59615103 ScholiaQ59615103MaRDI QIDQ2398080FDOQ2398080
Publication date: 15 August 2017
Published in: Test (Search for Journal in Brave)
Abstract: In this paper, we discuss a method to define prior distributions for the threshold of a generalised Pareto distribution, in particular when its applications are directed to heavy-tailed data. We propose to assign prior probabilities to the order statistics of a given set of observations. In other words, we assume that the threshold coincides to one of the data points. We show two ways of defining a prior: by assigning equal mass to each order statistic, that is a uniform prior, and by considering the worth that every order statistic has in representing the true threshold. Both proposed priors represent a scenario of minimal information, and we study their adequacy through simulation exercises and by analysing two applications from insurance and from finance.
Full work available at URL: https://arxiv.org/abs/1604.01268
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heavy tailsKullback-Leibler divergenceextreme valuesgeneralised Pareto distributionself-information loss
Bayesian inference (62F15) Statistics of extreme values; tail inference (62G32) Applications of statistics to actuarial sciences and financial mathematics (62P05)
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Cited In (5)
- On the composite Lognormal–Pareto distribution with uncertain threshold
- Thresholding procedure with priors based on Pareto distributions
- An extreme value Bayesian Lasso for the conditional left and right tails
- Exact posterior distribution for nonconjugate Pareto models
- A default Bayesian procedure for the generalized Pareto distribution
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