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Title: Modeling censored losses using splicing: A global fit strategy with mixed Erlang and extreme value distributions
Authors: Reynkens, Tom
Verbelen, Roel
Beirlant, Jan
Antonio, Katrien
Issue Date: 2016
Publisher: KU Leuven - Faculty of Economics and Business
Series Title: FEB Research report AFI_16110 pages:1-43
Abstract: In risk analysis, a global fit that appropriately captures the body and the tail of the distribution of losses is essential. Modeling the whole range of the losses using
a standard distribution is usually very hard and often impossible due to the specific characteristics of the body and the tail of the loss distribution. A possible solution
is to combine two distributions in a splicing model: a light-tailed distribution for the body which covers light and moderate losses, and a heavy-tailed distribution for the
tail to capture large losses. We propose a splicing model with a mixed Erlang (ME) distribution for the body and a Pareto distribution for the tail. This combines the
flexibility of the ME distribution with the ability of the Pareto distribution to model extreme values. We extend our splicing approach for censored and/or truncated data.
Relevant examples of such data can be found in financial risk analysis. We illustrate the flexibility of this splicing model using practical examples from risk measurement.
Publication status: published
KU Leuven publication type: IR
Appears in Collections:Research Center for Operations Research and Business Statistics (ORSTAT), Leuven
Statistics Section
Research Center Insurance, Leuven

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