Research Article Strong Convergence Bound of the Pareto Index Estimator under Right Censoring

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1 Hindawi Publishing Corporation Journal of Inequalities and Applications Volume 200, Article ID 20956, 8 pages doi:0.55/200/20956 Research Article Strong Convergence Bound of the Pareto Index Estimator under Right Censoring Bao Tao and Zuoxiang Peng 2 College of Mathematics and Statistics, Chongqing Technology and Business University, Chongqing , China 2 School of Mathematics and Statistics, Southwest University, Chongqing 40075, China Correspondence should be addressed to Bao Tao, taobao@ctbu.edu.cn Received 25 October 2009; Revised 4 March 200; Accepted April 200 Academic Editor: Siegfried Carl Copyright q 200 B. Tao and Z. Peng. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. Let {X n,n } be a sequence of positive independent and identically distributed random variables with common Pareto-type distribution function F x x / l F x as > 0, where l F x represents a slowly varying function at infinity. In this note we study the strong convergence bound of a kind of right censored Pareto index estimator under second-order regularly varying conditions.. Introduction A distribution F is said to be of Pareto-type if there exists a positive constant such that F x x / l F x,. where l F x is a slowly varying function at infinity, that is, l F tx x >0..2 t l F t The parameter is called the Pareto index. Estimating the Pareto index is very important in theoretical analysis and practical applications of extreme value theory; for example, Embrechts et al., Reiss and Thomas 2 and references therein. For recent work on estimating extreme value index, see Beirlant and

2 2 Journal of Inequalities and Applications Guillou 3, Fraga Alves 4, 5, Gomes et al. 6, Gomes and Henriques Rodrigues 7,andLi et al. 8, 9. Suppose that {X n,n } is a sequence of positive independent and identically distributed i.i.d. random variables with common distribution function F, andletx,n X 2,n X n,n denote the order statistics of X,X 2,...,X n. By using maximum likelihood method, Hill 0 introduced the following well-known estimator of, thatis, H k,n k log X n j,n log X n k,n. j.3 Mason proved weak consistency of H k,n for any sequence k k n, k n /n 0 n and Deheuvels et al. 2 proved its strong consistency for any sequence k n with k n /n 0,k n / log log n n. The strong convergence bounds of the Hill estimator H k,n have been considered by Peng and Nadarajah 3 under second-order regularly varying conditions. Recently Beirlant and Guillou 3 proposed a new kind of Hill estimator in case of the sample being right censored. In actuarial setting, most insurance policies it the claim size and reinsure the large claim size exceeding the given level. So the observed claim size series are right censored. Suppose that X,n X 2,n X N,n are the first N N n ascending order statistics of X,X 2,...,X n, where N is an integer random variable. Define k, n k n N log X n j,n X n k,n log X N,n X n k,n.4 as the estimator of, where k n N,...,n. This estimator reduces to the Hill estimator in the absence of censoring. Beirlant and Guillou 3 proved weak and strong consistency, and asymptotic normality of k, n. In this paper, we consider the strong convergence bound of this Pareto index estimator k, n under second-order regularly varying conditions. 2. Main Results Denote U x / F x inf{t : F t /x} x > ; then. is equivalent to U tx t U t x. 2. In order to investigate the strong convergence bound of k, n, we require knowing the convergence rate of 2.. For this reason, we need the following second-order regular condition. Suppose that there exists a measurable function A t satisfying t A t 0, and a function H x / cx such that for all x>0, { } U tx t A t U t x H x. 2.2

3 Journal of Inequalities and Applications 3 Then H x must be of the form x x / for some 0 x x / : x log x as 0,and is the regularly varying index of A t,thatis,a t RV ; for example, de Haan and Stadtmüller holds if and only if for all x>0, log U tx log U t log x t A t x. 2.3 In order to obtain the strong convergence bound of k, n, we give the following two results firstly. Theorem 2.. Suppose that 2.2 holds, and further assume that k/n p n 0, k/ log n δ for some δ>0, k/ 2log logn A n/k β 0,, and / 0 as,where0 <N<n.Then ( log Xn j,n log X n k,n ) ( 2 ) β 2.4 Theorem 2.2. Suppose that 2.2 holds, and further assume that k/n p n 0, n N / log log n, k/ 2log logn A n/k β 0,, and /2 log /k 0 as,where0 <N<n.Then log X N,n log X n k,n By using Theorems 2. and 2.2, we can deduce the following theorem easily. Theorem 2.3. Suppose that 2.2 holds and assume that k/n p n 0, k/ 2log logn A n/k β 0,, k/ log n δ for some δ>0, /2 log /k 0, and log log n as where 0 <N<n;then k ( ) k, n 2 2log logn β Proofs Suppose that Y,Y 2,...,Y n are independent and identically distributed random variables with common distribution function P Y x /x x.lety,n Y 2,n Y n,n denote the order statistics of Y,Y 2,...,Y n. It is easy to see that U Y,U Y 2,... X d,x 2,.... For the sake of simplicity, define k, n as k, n k n N log U( Y n j,n ) U log U Y N,n U. 3.

4 4 Journal of Inequalities and Applications The following auxiliary results are necessary for the proofs of the main results. The first two results are correct due to Wellner 5. Lemma 3.. If k/n 0 and k/ log log,then k n 3.2 Lemma 3.2. Suppose that k, k/n p n 0, and np n / log log.then k log n log k log Yn k,n 3.3 Proof. Applying Lemma 3., wefind k ( ( ) ) n log n log k log k o 3.4 Notice that /Y i is uniformly distributed on 0, ; the result follows from Wellner 5. Lemma 3.3. Let k, k/n p n 0 and k/ log log.then k i log Y n i,n k ( log n log k ) Proof. The result follows from Deheuvels and Mason 6. The following bound of 2.3 is from Drees 7 ; for example, Theorem B.2.8 of de Haan and Ferreira 8. Lemma 3.4. If 2.2 holds, then for every ɛ>0, thereexistst 0 > 0 such that for t t 0 and x, log U tx log U t log x A t x ɛx ɛ. 3.6 Lemma 3.5. Assume that k/n 0, k/ log n δ for some δ>0and /k 0 as where 0 <N<n.Suppose ξ,n ξ 2,n ξ n,n are order statistics from parent ξ with distribution function F x x α 0 <x< for some α>0. Then k n N ξ j,n ξ k,n α α 3.7 Proof. The proof is similar to the proof of Lemma 2.3 i in Dekkers et al. 9 ; for example, Lemma of Beirlant and Guillou 3.

5 Journal of Inequalities and Applications 5 Based on the above lemmas, we prove Theorems 2. and 2.2. Proof of Theorem 2.. We only prove the case for < 0. For the case for 0, the proof is similar. Clearly, [ log U ( Yn j,n ) log U Yn k,n ] D j n A A [ (Yn j,n ) ] 3.8 ( log Yn j,n log ), where D j n log U( ) Y n j,n log U Yn k,n log ( ) Y n j,n / A ( ) Yn j,n / 3.9 for j,...,k. By using Lemmas 3. and 3.4, forsufficiently large n, we have D j n ɛ ( Yn j,n ) ɛ. 3.0 Noting that P Y ε i x x / ε for i,...,nand by using Lemma 3.5 we find k ( Yn j,n ) ɛ ɛ 3. Since A t RV and follows that k/2log logna n/k β, by 3.0, and 3., andlemma 3., it D j n A by letting ɛ 0. Similarly, A [ (Yn j,n ) ] β 3.3

6 6 Journal of Inequalities and Applications From Lemmas 3.2,and3.3, and the conditions provided by Theorem 2., we have log Yn j,n log ( ) log Y n j,n k n N [ log n log k n N ] k n N log n log k log Yn k,n ( 2 ) k n N log k log k n N 3.4 Combining 3.2, 3.3 with 3.4, we complete the proof. Proof of Theorem 2.2. We only prove the case of <0. Clearly, log U Y N,n log U G n A A Y N,n/ ( log Y N,n log ), 3.5 where G n log U Y N,n log U log Y N,n / A Y N,n/. 3.6 By using Lemmas 3. and 3.4,forsufficiently large n, we have ( ) ɛ YN,n G n ɛ. 3.7 Since A t RV,byusingLemma 3. and the conditions provided by this theorem, we have G n A 0 3.8

7 Journal of Inequalities and Applications 7 Similarly, A Y N,n/ By using Lemma 3.2 and the conditions of Theorem 2.2, it follows that ( ) log YN,n log log n log k log Yn k,n log n log log YN,n 3.20 log k log 0 Combining 3.8, 3.9 with 3.20, we complete the proof. Acknowledgments The authors would like to sincerely thank the Editor-in-Chief and the anonymous referees for their valuable comments and suggestions on a previous draft, which resulted in the present version of the paper. This paper was partially supported by Chongqing Municipal Education Commission Projects No. KJ00726, KJ and Chongqing NSF No. 2009BB822. References P. Embrechts, C. Klüppelberg, and T. Mikosch, Modelling Extremal Events: For Insurance and Finance, vol. 33 of Applications of Mathematics, Springer, Berlin, Germany, R.-D. Reiss and M. Thomas, Statistical Analysis of Extreme Values: From Insurance, Finance, Hydrology and Other Fields,Birkhäuser, Basel, Switzerland, J. Beirlant and A. Guillou, Pareto index estimation under moderate right censoring, Scandinavian Actuarial Journal, vol. 0, no. 2, pp. 25, M. I. Fraga Alves, A location invariant Hill-type estimator, Extremes, vol. 4, no. 3, pp , M. I. Fraga Alves, M. I. Gomes, L. de Haan, and C. Neves, Mixed moment estimator and location invariant alternatives, Extremes, vol. 2, no. 2, pp , M. I. Gomes, L. de Haan, and L. H. Rodrigues, Tail index estimation for heavy-tailed models: accommodation of bias in weighted log-excesses, Journal of the Royal Statistical Society. Series B, vol. 70, no., pp. 3 52, M. I. Gomes and L. Henriques Rodrigues, Tail index estimation for heavy tails: accommodation of bias in the excesses over a high threshold, Extremes, vol., no. 3, pp , J. Li, Z. Peng, and S. Nadarajah, A class of unbiased location invariant Hill-type estimators for heavy tailed distributions, Electronic Journal of Statistics, vol. 2, pp , J. Li, Z. Peng, and S. Nadarajah, Asymptotic normality of location invariant heavy tail index estimator, to appear in Extremes.

8 8 Journal of Inequalities and Applications 0 B. M. Hill, A simple general approach to inference about the tail of a distribution, The Annals of Statistics, vol. 3, no. 5, pp , 975. D. M. Mason, Laws of large numbers for sums of extreme values, The Annals of Probability, vol. 0, no. 3, pp , P. Deheuvels, E. Haeusler, and D. M. Mason, Almost sure convergence of the Hill estimator, Mathematical Proceedings of the Cambridge Philosophical Society, vol. 04, no. 2, pp , Z. Peng and S. Nadarajah, Strong convergence bounds of the Hill-type estimator under secondorder regularly varying conditions, Journal of Inequalities and Applications, vol. 2006, Article ID 9524, 7 pages, L. de Haan and U. Stadtmüller, Generalized regular variation of second order, Journal of the Australian Mathematical Society. Series A, vol. 6, no. 3, pp , J. A. Wellner, Limit theorems for the ratio of the empirical distribution function to the true distribution function, Probability Theory and Related Fields, vol. 45, no., pp , P. Deheuvels and D. M. Mason, The asymptotic behavior of sums of exponential extreme values, Bulletin des Sciences Mathématiques. 2e Série, vol. 2, no. 2, pp , H. Drees, On smooth statistical tail functionals, Scandinavian Journal of Statistics, vol. 25, no., pp , L. de Haan and A. Ferreira, Extreme Value Theory: An Introduction, Springer Series in Operations Research and Financial Engineering, Springer, New York, NY, USA, A. L. M. Dekkers, J. H. J. Einmahl, and L. de Haan, A moment estimator for the index of an extremevalue distribution, The Annals of Statistics, vol. 7, no. 4, pp , 989.