Bernoulli

  • Bernoulli
  • Volume 18, Number 2 (2012), 455-475.

A multivariate piecing-together approach with an application to operational loss data

Stefan Aulbach, Verena Bayer, and Michael Falk

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Abstract

The univariate piecing-together approach (PT) fits a univariate generalized Pareto distribution (GPD) to the upper tail of a given distribution function in a continuous manner. We propose a multivariate extension. First it is shown that an arbitrary copula is in the domain of attraction of a multivariate extreme value distribution if and only if its upper tail can be approximated by the upper tail of a multivariate GPD with uniform margins.

The multivariate PT then consists of two steps: The upper tail of a given copula C is cut off and substituted by a multivariate GPD copula in a continuous manner. The result is again a copula. The other step consists of the transformation of each margin of this new copula by a given univariate distribution function.

This provides, altogether, a multivariate distribution function with prescribed margins whose copula coincides in its central part with C and in its upper tail with a GPD copula.

When applied to data, this approach also enables the evaluation of a wide range of rational scenarios for the upper tail of the underlying distribution function in the multivariate case. We apply this approach to operational loss data in order to evaluate the range of operational risk.

Article information

Source
Bernoulli, Volume 18, Number 2 (2012), 455-475.

Dates
First available in Project Euclid: 16 April 2012

Permanent link to this document
https://projecteuclid.org/euclid.bj/1334580720

Digital Object Identifier
doi:10.3150/10-BEJ343

Mathematical Reviews number (MathSciNet)
MR2922457

Zentralblatt MATH identifier
1238.62062

Keywords
copula domain of multivariate attraction GPD copula multivariate extreme value distribution multivariate generalized Pareto distribution operational loss peaks over threshold piecing together

Citation

Aulbach, Stefan; Bayer, Verena; Falk, Michael. A multivariate piecing-together approach with an application to operational loss data. Bernoulli 18 (2012), no. 2, 455--475. doi:10.3150/10-BEJ343. https://projecteuclid.org/euclid.bj/1334580720


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