Tail analysis without parametric models: a worst-case perspective

DOI10.1287/OPRE.2017.1643MaRDI QIDQ4602481zbMATH OpenOpenAlexFDO

Authors Henry Lam, Clementine Mottet

Publication date 11 January 2018

Published in Operations Research (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1507.03293

zbMATH Keywords

nonparametricrobust analysistail modeling

Mathematics Subject Classification ID

Statistics of extreme values; tail inference (62G32) Applications of statistics to actuarial sciences and financial mathematics (62P05) Nonlinear programming (90C30)

Abstract: A common bottleneck in evaluating extremal performance measures is that, due to their very nature, tail data are often very limited. The conventional approach selects the best probability distribution from tail data using parametric fitting, but the validity of the parametric choice can be difficult to verify. This paper describes an alternative based on the computation of worst-case bounds under the geometric premise of tail convexity, a feature shared by all common parametric tail distributions. We characterize the optimality structure of the resulting optimization problem, and demonstrate that the worst-case convex tail behavior is in a sense either extremely light-tailed or extremely heavy-tailed. We develop low-dimensional nonlinear programs that distinguish between the two cases and compute the worst-case bound. We numerically illustrate how the proposed approach can give more reliable performances than conventional parametric methods.

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• Distributionally robust tail bounds based on Wasserstein distance and f-divergence
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• Catastrophic risk: indication, quantitative assessment and management of rare extreme events using a non-expected utility framework
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