Tail Analysis without Parametric Models: A Worst-case Perspective (1507.03293v3)

Abstract: A common bottleneck in evaluating extremal performance measures is that, due to their very nature, tail data are often very limited. The conventional approach selects the best probability distribution from tail data using parametric fitting, but the validity of the parametric choice can be difficult to verify. This paper describes an alternative based on the computation of worst-case bounds under the geometric premise of tail convexity, a feature shared by all common parametric tail distributions. We characterize the optimality structure of the resulting optimization problem, and demonstrate that the worst-case convex tail behavior is in a sense either extremely light-tailed or extremely heavy-tailed. We develop low-dimensional nonlinear programs that distinguish between the two cases and compute the worst-case bound. We numerically illustrate how the proposed approach can give more reliable performances than conventional parametric methods.