A New Method to Choose the Threshold in the POT Model

Author

Zhang Xiangxian ; Ge Wenlei

Author_Institution

Sch. of Manage., Donghua Univ., Shanghai, China

fYear

2009

fDate

26-28 Dec. 2009

Firstpage

750

Lastpage

753

Abstract

The selection of an appropriate threshold is one of the main concerns about the POT (Peaks Over Threshold ) model, which is widely used in many fields, such as in insurance and environmental analysis. In this article, a new method which is based on the MSE criterion and two-sample K-S tests is proposed to determine the optimal threshold in the GPD model. Different from the traditional subjective methods, the proposed method can determine the threshold by quantification, and is easy to be implemented by a computer program. An empirical study using the daily returns of S&P 500 index is also presented. It´s shown that the proposed method can well capture the optimal threshold.

Keywords

Pareto distribution; mean square error methods; optimisation; threshold elements; GPD model; K-S tests; MSE criterion; POT model threshold; environmental analysis; insurance analysis; optimal threshold; peaks over threshold; Conference management; Distribution functions; Engineering management; Information science; Insurance; Maximum likelihood estimation; Pareto analysis; Statistical distributions; Tail; Testing;

fLanguage

English

Publisher

ieee

Conference_Titel

Information Science and Engineering (ICISE), 2009 1st International Conference on

Conference_Location

Nanjing

Print_ISBN

978-1-4244-4909-5

Type

conf

DOI

10.1109/ICISE.2009.97

Filename

5454579