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Abstract:
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The Generalized Pareto Distribution (GPD) plays a central role in modelling heavy tail phenomena in many applications. Applying the GPD to actual datasets however is a non-trivial task. One common way suggested in the literature to investigate the tail behaviour is to take logarithm to the original dataset in order to reduce the sample variability, as seen in the Hill estimator. Inspired by this, we propose and study the Exponentiated Generalized Pareto Distribution (exGPD), which is created via log-transform of the GPD variable. After introducing the exGPD we derive various distributional quantities, including the moment generating function, tail risk measures. As an application we also develop a plot as an alternative to the Hill plot to identify the tail index of heavy tailed datasets, based on the moment matching for the exGPD. Simulation studies show that the proposed plot works well for heavy-tailed datasets compared to the Hill plot.
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