2,173 research outputs found
Copulas in finance and insurance
Copulas provide a potential useful modeling tool to represent the dependence structure
among variables and to generate joint distributions by combining given marginal
distributions. Simulations play a relevant role in finance and insurance. They are used to
replicate efficient frontiers or extremal values, to price options, to estimate joint risks, and so
on. Using copulas, it is easy to construct and simulate from multivariate distributions based
on almost any choice of marginals and any type of dependence structure. In this paper we
outline recent contributions of statistical modeling using copulas in finance and insurance.
We review issues related to the notion of copulas, copula families, copula-based dynamic and
static dependence structure, copulas and latent factor models and simulation of copulas.
Finally, we outline hot topics in copulas with a special focus on model selection and
goodness-of-fit testing
Sloshing in the LNG shipping industry: risk modelling through multivariate heavy-tail analysis
In the liquefied natural gas (LNG) shipping industry, the phenomenon of
sloshing can lead to the occurrence of very high pressures in the tanks of the
vessel. The issue of modelling or estimating the probability of the
simultaneous occurrence of such extremal pressures is now crucial from the risk
assessment point of view. In this paper, heavy-tail modelling, widely used as a
conservative approach to risk assessment and corresponding to a worst-case risk
analysis, is applied to the study of sloshing. Multivariate heavy-tailed
distributions are considered, with Sloshing pressures investigated by means of
small-scale replica tanks instrumented with d >1 sensors. When attempting to
fit such nonparametric statistical models, one naturally faces computational
issues inherent in the phenomenon of dimensionality. The primary purpose of
this article is to overcome this barrier by introducing a novel methodology.
For d-dimensional heavy-tailed distributions, the structure of extremal
dependence is entirely characterised by the angular measure, a positive measure
on the intersection of a sphere with the positive orthant in Rd. As d
increases, the mutual extremal dependence between variables becomes difficult
to assess. Based on a spectral clustering approach, we show here how a low
dimensional approximation to the angular measure may be found. The
nonparametric method proposed for model sloshing has been successfully applied
to pressure data. The parsimonious representation thus obtained proves to be
very convenient for the simulation of multivariate heavy-tailed distributions,
allowing for the implementation of Monte-Carlo simulation schemes in estimating
the probability of failure. Besides confirming its performance on artificial
data, the methodology has been implemented on a real data set specifically
collected for risk assessment of sloshing in the LNG shipping industry
Statistical Modeling of Spatial Extremes
The areal modeling of the extremes of a natural process such as rainfall or
temperature is important in environmental statistics; for example,
understanding extreme areal rainfall is crucial in flood protection. This
article reviews recent progress in the statistical modeling of spatial
extremes, starting with sketches of the necessary elements of extreme value
statistics and geostatistics. The main types of statistical models thus far
proposed, based on latent variables, on copulas and on spatial max-stable
processes, are described and then are compared by application to a data set on
rainfall in Switzerland. Whereas latent variable modeling allows a better fit
to marginal distributions, it fits the joint distributions of extremes poorly,
so appropriately-chosen copula or max-stable models seem essential for
successful spatial modeling of extremes.Comment: Published in at http://dx.doi.org/10.1214/11-STS376 the Statistical
Science (http://www.imstat.org/sts/) by the Institute of Mathematical
Statistics (http://www.imstat.org
Copulas in finance and insurance
Copulas provide a potential useful modeling tool to represent the dependence structure among variables and to generate joint distributions by combining given marginal distributions. Simulations play a relevant role in finance and insurance. They are used to replicate efficient frontiers or extremal values, to price options, to estimate joint risks, and so on. Using copulas, it is easy to construct and simulate from multivariate distributions based on almost any choice of marginals and any type of dependence structure. In this paper we outline recent contributions of statistical modeling using copulas in finance and insurance. We review issues related to the notion of copulas, copula families, copula-based dynamic and static dependence structure, copulas and latent factor models and simulation of copulas. Finally, we outline hot topics in copulas with a special focus on model selection and goodness-of-fit testing.Dependence structure, Extremal values, Copula modeling, Copula review
Extreme Value Analysis of Teletraffic Data
An empirically verified characteristic of the expanding area of Internet is the longtailness of phenomena such as cpu time to complete a job, call holding times, files lengths requested, inter-arrival times and so on. Extreme values of the above quantities are liable to cause problems to the efficient operation of the network and call for effective design and management. Extreme-value analysis is an area of statistical analysis particularly concerned with the systematic study of extremes, providing useful insight to fields where extreme values are probable to occur and have detrimental effects, as is the case of teletraffics. In this paper we illustrate the main elements of this analysis and proceed to a detailed application of extreme-value analysis concepts to a specific teletraffic data set. This analysis verifies, too, the existence of long tails in the data.Teletraffic engineering, Long tails, Extreme-value index, Smoothing procedures
Extreme-Value Copulas
Being the limits of copulas of componentwise maxima in independent random
samples, extreme-value copulas can be considered to provide appropriate models
for the dependence structure between rare events. Extreme-value copulas not
only arise naturally in the domain of extreme-value theory, they can also be a
convenient choice to model general positive dependence structures. The aim of
this survey is to present the reader with the state-of-the-art in dependence
modeling via extreme-value copulas. Both probabilistic and statistical issues
are reviewed, in a nonparametric as well as a parametric context.Comment: 20 pages, 3 figures. Minor revision, typos corrected. To appear in F.
Durante, W. Haerdle, P. Jaworski, and T. Rychlik (editors) "Workshop on
Copula Theory and its Applications", Lecture Notes in Statistics --
Proceedings, Springer 201
Actuarial versus Financial Pricing of Insurance
This paper grew out of various recent discussions with academics and practitioners around the theme of the interplay between insurance and finance. Some issues were: The increasing collaboration between insurance companies and banks The emergence of finance related insurance products, as there are catastrophy futures and options, PCS options, indexed linked policies... The deregulation of various (national) insurance markets The discussion around risk management methodology for financial institutions The evolution from a more liability modelling oriented industry (insurance) to a more global financial industry involving asset-liability and risk-capital based modelling The emergence of financial engineering as a new profession, its interplay with actuarial training and research. Rather than aiming at giving a complete overview of the issue at hand, the author concentrates on some recent (and not so recent) developments which from a methodological point of view offer new insight into the comparison of pricing mechanisms between insurance and finance. The author views this paper very much as work in progress. This paper was presented at the Financial Institutions Center's May 1996 conference on "
On Tail Index Estimation based on Multivariate Data
This article is devoted to the study of tail index estimation based on i.i.d.
multivariate observations, drawn from a standard heavy-tailed distribution,
i.e. of which 1-d Pareto-like marginals share the same tail index. A
multivariate Central Limit Theorem for a random vector, whose components
correspond to (possibly dependent) Hill estimators of the common shape index
alpha, is established under mild conditions. Motivated by the statistical
analysis of extremal spatial data in particular, we introduce the concept of
(standard) heavy-tailed random field of tail index alpha and show how this
limit result can be used in order to build an estimator of alpha with small
asymptotic mean squared error, through a proper convex linear combination of
the coordinates. Beyond asymptotic results, simulation experiments illustrating
the relevance of the approach promoted are also presented
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