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    Inference for Heavy-Tailed Data: Applications in Insurance and Finance
    Inference for Heavy-Tailed Data: Applications in Insurance and Finance
    Inference for Heavy-Tailed Data: Applications in Insurance and Finance
    Ebook327 pages4 hours

    Inference for Heavy-Tailed Data: Applications in Insurance and Finance

    By Liang Peng and Yongcheng Qi

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    About this ebook

    Heavy tailed data appears frequently in social science, internet traffic, insurance and finance. Statistical inference has been studied for many years, which includes recent bias-reduction estimation for tail index and high quantiles with applications in risk management, empirical likelihood based interval estimation for tail index and high quantiles, hypothesis tests for heavy tails, the choice of sample fraction in tail index and high quantile inference. These results for independent data, dependent data, linear time series and nonlinear time series are scattered in different statistics journals. Inference for Heavy-Tailed Data Analysis puts these methods into a single place with a clear picture on learning and using these techniques.

    • Contains comprehensive coverage of new techniques of heavy tailed data analysis
    • Provides examples of heavy tailed data and its uses
    • Brings together, in a single place, a clear picture on learning and using these techniques
    LanguageEnglish
    PublisherAcademic Press
    Release dateAug 11, 2017
    ISBN9780128047507
    Inference for Heavy-Tailed Data: Applications in Insurance and Finance
    Author

    Liang Peng

    Dr Liang Peng is based at the Department of Risk Management and Insurance at Robinson College of Business, Georgia State University, USA

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      Book preview

      Inference for Heavy-Tailed Data - Liang Peng

      statistics.

      Preface

      Liang Peng     Atlanta, Georgia

      Yongcheng Qi     Duluth, Minnesota

      Heavy tailed data frequently appear in insurance and finance, and a loss variable with a heavy tail rarely creates unusually huge losses. Unfortunately such an extreme loss often causes severe damages to our society. Extreme value theory has been developed to model, analyze and predict such an extreme event for decades.

      Several excellent books on extreme value theory have been available in the market such as Leadbetter et al. [67], Resnick [91], Embrechts et al. [36], Coles [22], Beirlant et al. [5], de Haan and Ferreira [27] and Novak [75]. With little overlapping with these existing books, this short book aims to collect some recent statistical inference methods for analyzing heavy tailed data. This collection heavily relies on our own research experience and understanding of difficulties in applying extreme value theory to real life data in insurance and finance, and so we surely miss many other good methods.

      Chapter 1 collects some definitions and notations in probability theory and extreme value theory. Chapter 2 uses a well-known tail index estimator to address issues and methods for analyzing heavy tailed independent data such as the applications of tail empirical process, tail quantile process and inequalities for a regularly varying function, the choice of sample fraction in tail index estimation and high quantile estimation, goodness-of-fit tests for heavy tailed distribution functions, and expected shortfall with a possible infinite variance loss. Chapter 3 collects some methods for analyzing heavy tailed dependent data with a focus on time series models such as ARMA models and GARCH models. Chapter 4 collects some applications of multivariate regular variation in risk analysis. Finally the collected inference procedures are applied to some real data sets in insurance and finance in Chapter 5.

      Writing such a short book is not easy unlike we thought and planned in the beginning. Selecting topics and unifying notations are quite time-consuming. We are grateful to our families for their support. Without their understanding, we can not sacrifice so much of our family time to finish this book on time.

      We also thank Lindsay Lawrence, Glyn Jones and the team at Elsevier for guidance and help throughout the publishing process.

      May 2017

      References

      [5] J. Beirlant, T. de Wet, Y. Goegebeur, Statistics of Extremes: Theory and Applications. New Jersey: John Wiley & Sons Ltd; 2004.

      [22] S. Coles, An Introduction to Statistical Modeling of Extreme Values. New York: Springer; 2001.

      [27] L. de Haan, A. Ferreira, Extreme Value Theory: An Introduction. New York: Springer; 2006.

      [36] P. Embrechts, C. Klüppelberg, T. Mikosch, Modelling Extremal Events for Insurance and Finance. New York: Springer; 1997.

      [67] M.R. Leadbetter, G. Lindgren, H. Rootzén, Extremes and Related Properties of Random Sequences and Processes. New York: Springer; 1983.

      [75] S.Y. Novak, Extreme Value Methods with Applications to Finance. CRC Press; 2011.

      [91] S. Resnick, Extreme Values, Regular Variation, and Point Process. New York: Springer; 1987.

      Chapter 1

      Introduction

      Abstract

      This chapter collects some useful definitions and notations in probability theory and extreme value theory.

      Keywords

      convergence; distribution function; extreme value distribution; maximum; probability; random variables

      This chapter collects some useful definitions and notations in probability theory and extreme value theory.

      1.1 Basic Probability Theory

      Let Ω if ω is an element of Ωif A is a subset of Ω.

      Definition 1.1

      of subsets of Ω is called an algebra if

      ; and

      .

      is called a σ-algebra or a σ-field if, in addition to i) and ii),

      .

      Definition 1.2

      is a σ-algebra with respect to the space Ωis called a measurable spaceare called measurable sets.

      Definition 1.3

      The elements of the σare called Borel setsis called Borel space.

      Definition 1.4

      are two measurable spaces and f , then f is said to be a measurable transformation/mapping .

      Definition 1.5

      , a set function P is called a probability if

      , where ∅ denotes the empty set;

      );

      .

      is called a probability space.

      Definition 1.6

      A real-valued measurable function X is called a random variable. The

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