LO 45.4: Compare and contrast generalized extreme value and POT.
Extreme value theory is the source of both the GEV and POT approaches. These approaches are similar in that they both have a tail parameter denoted There is a subtle difference in that GEV theory focuses on the distributions of extremes, whereas POT focuses on the distribution of values that exceed a certain threshold. Although very similar in concept, there are cases where a researcher might choose one over the other. Here are three considerations. 1. GEV requires the estimation of one more parameter than POT. The most popular
approaches of the GEV can lead to loss of useful data relative to the POT.
2. The POT approach requires a choice of a threshold, which can introduce additional
uncertainty.
3. The nature of the data may make one preferable to the other.
M u l t i v a r i a t e EVT
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