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research article

Robust Bounds In Multivariate Extremes

Engelke, Sebastian  
•
Ivanovs, Jevgenijs
2017
Annals Of Applied Probability

Extreme value theory provides an asymptotically justified framework for estimation of exceedance probabilities in regions where few or no observations are available. For multivariate tail estimation, the strength of extremal dependence is crucial and it is typically modeled by a parametric family of spectral distributions. In this work, we provide asymptotic bounds on exceedance probabilities that are robust against misspecification of the extremal dependence model. They arise from optimizing the statistic of interest over all dependence models within some neighborhood of the reference model. A certain relaxation of these bounds yields surprisingly simple and explicit expressions, which we propose to use in applications. We show the effectiveness of the robust approach compared to classical confidence bounds when the model is misspecified. The results are further applied to quantify the effect of model uncertainty on the Value-at-Risk of a financial portfolio.

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Type
research article
DOI
10.1214/17-Aap1294
Web of Science ID

WOS:000417972700012

Author(s)
Engelke, Sebastian  
Ivanovs, Jevgenijs
Date Issued

2017

Publisher

Institute of Mathematical Statistics

Published in
Annals Of Applied Probability
Volume

27

Issue

6

Start page

3706

End page

3734

Subjects

Extremal dependence

•

Pickands' function

•

model misspecification

•

stress test

•

robust bounds

•

convex optimization

Editorial or Peer reviewed

REVIEWED

Written at

EPFL

EPFL units
STAT  
Available on Infoscience
January 15, 2018
Use this identifier to reference this record
https://infoscience.epfl.ch/handle/20.500.14299/144076
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