Jacinto Martin

Value at Risk (VaR) and Conditional Value at Risk (CVaR) have become the most popular measures of market risk in Financial and Insurance fields. However, the estimation of both risk measures is challenging, because it requires the knowledge of the tail of the distribution. Therefore, Extreme Value Theory initially seemed to be one of the best tools for this kind of problems, because using peaks-over-threshold method, we can assume the tail data approximately follow a Generalized Pareto distribution (GPD). The main objection to its use is that it only employs observations over the threshold, which are usually scarce. With the aim of improving the inference process, we propose a new Bayesian method that computes estimates built with all the information available. Informative prior Bayesian (IPB) method employs the existing relations between the parameters of the loss distribution and the parameters of the GPD that models the tail data to define informative priors in order to perform Metropolis–Hastings algorithm. We show how to apply IPB when the distribution of the observations is Exponential, stable or Gamma, to make inference and predictions. .Afterwards, we perform a thorough simulation study to compare the accuracy and precision of the estimates computed by IPB and the most employed methods to estimate VaR and CVaR. Results show that IPB provides the most accurate, precise and least biased estimates, especially when there are very few tail data. Finally, data from two real examples are analysed to show the practical application of the method.

Value at Risk (VaR) and Conditional Value at Risk (CVaR) have become the most popular measures of market risk in Financial and Insurance fields. However, the estimation of both risk measures is challenging, because it requires the knowledge of the tail of the distribution. Therefore, tools from Extreme Value Theory are usually employed, considering that the tail data follow a Generalized Pareto distribution (GPD). Using the existing relations from the parameters of the baseline distribution and the limit GPD's parameters, we define highly informative priors that incorporate all the information available for the whole set of observations. We show how to perform Metropolis-Hastings (MH) algorithm to estimate VaR and CVaR employing the highly informative priors, in the case of exponential, stable and Gamma distributions. Afterwards, we perform a thorough simulation study to compare the accuracy and precision provided by three different methods. Finally, data from a real example is analyzed to show the practical application of the methods.

In the parameter estimation of limit extreme value distributions, most employed methods only use some of the available data. Using the peaks-over-threshold method for Generalized Pareto Distribution (GPD), only the observations above a certain threshold are considered; therefore, a big amount of information is wasted. The aim of this work is to make the most of the information provided by the observations in order to improve the accuracy of Bayesian parameter estimation. We present two new Bayesian methods to estimate the parameters of the GPD, taking into account the whole data set from the baseline distribution and the existing relations between the baseline and the limit GPD parameters in order to define highly informative priors. We make a comparison between the Bayesian Metropolis–Hastings algorithm with data over the threshold and the new methods when the baseline distribution is a stable distribution, whose properties assure we can reduce the problem to study standard distributions and also allow us to propose new estimators for the parameters of the tail distribution. Specifically, three cases of stable distributions were considered: Normal, Lévy and Cauchy distributions, as main examples of the different behaviors of the tails of a distribution. Nevertheless, the methods would be applicable to many other baseline distributions through finding relations between baseline and GPD parameters via studies of simulations. To illustrate this situation, we study the application of the methods with real data of air pollution in Badajoz (Spain), whose baseline distribution fits a Gamma, and show that the baseline methods improve estimates compared to the Bayesian Metropolis–Hastings algorithm.

Usual estimation methods for the parameters of extreme value distributions only employ a small part of the observation values. When block maxima values are considered, many data are discarded, and therefore a lot of information is wasted. We develop a model to seize the whole data available in an extreme value framework. The key is to take advantage of the existing relation between the baseline parameters and the parameters of the block maxima distribution. We propose two methods to perform Bayesian estimation. Baseline distribution method (BDM) consists in computing estimations for the baseline parameters with all the data, and then making a transformation to compute estimations for the block maxima parameters. Improved baseline method (IBDM) is a refinement of the initial idea, with the aim of assigning more importance to the block maxima data than to the baseline values, performed by applying BDM to develop an improved prior distribution. We compare empirically these new methods with the Standard Bayesian analysis with non-informative prior, considering three baseline distributions that lead to a Gumbel extreme distribution, namely Gumbel, Exponential and Normal, by a broad simulation study.

Motivated by a longitudinal oral health study, the Signal-Tandmobiel^® study, a Bayesian approach has been developed to model misclassified ordinal response data. Two regression models have been considered to incorporate misclassification in the categorical response. Specifically, probit and logit models have been developed. The computational difficulties have been avoided by using data augmentation. This idea is exploited to derive efficient Markov chain Monte Carlo methods. Although the method is proposed for ordered categories, it can also be implemented for unordered ones in a simple way. The model performance is shown through a simulation-based example and the analysis of the motivating study.

Usual estimation methods for the parameters of extreme values distribution employ only a few values, wasting a lot of information. More precisely, in the case of the Gumbel distribution, only the block maxima values are used. In this work, we propose a method to seize all the available information in order to increase the accuracy of the estimations. This intent can be achieved by taking advantage of the existing relationship between the parameters of the baseline distribution, which generates data from the full sample space, and the ones for the limit Gumbel distribution. In this way, an informative prior distribution can be obtained. Different statistical tests are used to compare the behaviour of our method with the standard one, showing that the proposed method performs well when dealing with very shortened available data. The empirical effectiveness of the approach is demonstrated through a simulation study and a case study. Reduction in the credible interval width and enhancement in parameter location show that the results with improved prior adapt to very shortened data better than standard method does.

Vocal fold nodules are recognized as an occupational disease for all collective of workers performing activities for which maintained and continued use of voice is required. Computer‐aided systems based on features extracted from voice recordings have been considered as potential noninvasive and low cost tools to diagnose some voice‐related diseases. A Bayesian decision analysis approach has been proposed to classify university lectures in three levels of risk: low, medium, and high, based on the information provided by acoustic features extracted from healthy controls and people suffering from vocal fold nodules. The proposed risk groups are associated with different treatments. The approach is based on the calculation of posterior probabilities of developing vocal fold nodules and considers utility functions that include the financial cost and the probability of recovery for the corresponding treatment. Maximization of the expected utilities is considered. By using this approach, the risk of having vocal fold nodules is identified for each university lecturer, so he/she can be properly assigned to the right treatment. The approach has been applied to university lecturers according to the Disease Prevention Program of the University of Extremadura. However, it can also be applied to other voice professionals (singers, speakers, coaches, actors…).

A statistical study was made of the temporal trend in extreme rainfall in the region of Extremadura (Spain) during the period 1961–2009. A hierarchical spatio-temporal Bayesian model with a GEV parameterization of the extreme data was employed. The Bayesian model was implemented in a Markov chain Monte Carlo framework that allows the posterior distribution of the parameters that intervene in the model to be estimated. The results show a decrease of extreme rainfall in winter and spring and a slight increase in autumn. The uncertainty in the trend parameters obtained with the hierarchical approach is much smaller than the uncertainties obtained from the GEV model applied locally. Also found was a negative relationship between the NAO index and the extreme rainfall in Extremadura during winter. An increase was observed in the intensity of the NAO index in winter and spring, and a slight decrease in autumn.