Professional Documents
Culture Documents
Petra Friederichs
Meteorological Institute
University of Bonn
Applications of EVT
Finance
distribution of income has so called fat tails
value-at-risk: maximal daily lost
re-assurance
Hydrology
protection against flood
Q100: maximal flow that is expected once every 100 years
Meteorology
extreme winds
risk assessment (e.g. ICE, power plants)
heavy precipitation events
heat waves, hurricanes, droughts
extremes in a changing climate
Application
In classical statistics:
focus on AVERAGE behavior
of stochastic process
central limit theorem
M n=max {X 1 , , X n }
for n
M n follows a Generalized Extreme Value (GEV) distribution
Peak over Threshold (POT)
{ X i uX i u}
very large threshold u
follow a Generalized Pareto Distribution (GPD)
Poisson-Point GPD Process
combines POT with Poisson point process
M n =max {X 1 , , X n }
Dresden
M n =max {X 1 , , X n }
converges to ( n )
1 /
y
G y=exp [1
]
=0
y
G y=exp exp
location parameter
scale parameter
shape parameter
=0
G x =expexp[x ]
Gumbel
Frchet
=1/0
x
G x =exp[1 ]
=1/0
x
G x =exp[1 ]
Weibull
y
x=
=0
exponential tail
Frchet
=1/0
=1/0
y
x=
Xi
Let
F x be the distribution of X i
F x
1F xtb x t
lim
=e
1F x
x
for all
p=0.99
p=0.9
F(x)
t0
F x
x0.9
x0.99
Xi
Let
F x be the distribution of X i
F x
1 F x 1/
lim
=
x 1F x
for all
F x
Xi
Let
F x be the distribution of X i
F x
there exists
with
F F =1
and
1
1
1/
lim 1F F
1F F =
x
x
x
for all
F x
zm
1
Prob y z m =1G yz m =
m
calculated using invers distribution function (quantile function)
z m = G 1 = 1log 11/m
m
1
1
1
1
z m = G 1 = inf y F y
m
m
Block Maxima
Dresden
Block Maxima
Block Maxima
{ X i uX i u}
very large threshold u
follow a Generalized Pareto Distribution (GPD)
Daily precipitation for Nov-March (green) and May-Sept (red)
Dresden
Y i := X i uX i u
y
H yX i u=11
u
two parameters
scale parameter
shape parameter
=0
y
H y =1exp
u
exponential tail
Pareto (Frchet)
1H y~c y1/
polynomial tail behavior
Weibull
u
F =
yu
A=t 2t 1 [1
]
u
on A=t 1, t 2 y ,
{ y i } , i=1, , n
Maximum Likelihood (ML) Method
Assume
and PDF
f y , ,= F ' y , ,
L , ,= i =1 f y i , ,
It is easier to minimize the negative logarithm of the likelihood
n
l , ,=i=1 log f y i , ,
in general there is no analytical solution for the minimum
with respect to the parameters
Minimize using numerical algorithms.
The estimates
, ,
To Take Home
There exists a well elaborated statistical theory for extreme
values.
It applies to (almost) all (univariate) extremal problems.
EVT: extremes from a very large domain of stochastic processes
follow one of the three types: Gumbel, Frechet/Pareto, or Weibull
References
Coles, S (2001): An Introduction to Statistical Modeling of Extreme
Values. Springer Series in Statistics. Springer Verlag London. 208p
Beirlant, J; Y. Goegebeur; J. Segers; J. Teugels (2005): Statistics of
Extremes. Theory and Applications. John Wiley & Sons Ltd. 490p
Embrechts, Kppelberg, Mikosch (1997): Modelling Extremal Events for
Insurance and Finance. Springer Verlag Heidelberg.648p
Gumbel, E.J. (1958): Statistics of Extremes. (Dover Publication, New York
2004)
R Development Core Team (2003): R: A language and environment for
statistical computing, available at http://www.R-project.org
The evd and ismev Packages by Alec Stephenson and Stuard Coles