Tag Archives: quantile

INF7100, statistiques

27/05/2020 Arthur Charpentier Leave a comment

La seconde partie de mon intervention sur la science des données, dans le cadre du cours INF7100 portera sur les statistiques, univariées et multivarirées. Le plan sera le suivant

201: De la Statistique aux Sciences de Données pdf video (14:24)
211: Fonctions Usuelles en Statistique (fonction de réparition, densité, histogramme) pdf video (28:37)
221: Indicateurs Statistique: Valeur Centrale (moyenne) pdf video (32:56)
222: Indicateurs Statistique: Dispersion (variance, inégalités) pdf video (22:21)
223: Indicateurs Statistique: Approximations (approximation normale) pdf video (18:42)
224: Indicateurs Statistique: Quantiles pdf video (24:54)
231: Inférence (statistique bayésienne) pdf video (39:33)
241: Tests Statistiques (1) (tests, significativité, p-value) pdf video (43:41)
242: Tests Statistiques (2) (erreurs) pdf video (16:51)
261: Statistiques Bivariées pdf video (25:16)
271: Statistiques Multivariées: Projections pdf video (29:06)
272: Statistiques Multivariées: Clusters pdf video (32:21)
281: Réseaux et Graphs pdf video (32:40)
291: Données Chronologiques pdf video (29:01)

MAT7381

Quantile Regression (home made, part 2)

17/02/2020 Arthur Charpentier 2 Comments

A few months ago, I posted a note with some home made codes for quantile regression… there was something odd on the output, but it was because there was a (small) mathematical problem in my equation. So since I should teach those tomorrow, let me fix them.

Median

Consider a sample $\{y_1,\cdots,y_n\}$ . To compute the median, solve $\min_\mu \left\lbrace\sum_{i=1}^n|y_i-\mu|\right\rbrace$ which can be solved using linear programming techniques. More precisely, this problem is equivalent to $\min_{\mu,\mathbf{a},\mathbf{b}}\left\lbrace\sum_{i=1}^na_i+b_i\right\rbrace$ with $a_i,b_i\geq 0$ and $y_i-\mu=a_i-b_i$ , $\forall i=1,\cdots,n$ . Heuristically, the idea is to write $y_i=\mu+\varepsilon_i$ , and then define $a_i$ ‘s and $b_i$ ‘s so that $\varepsilon_i=a_i-b_i$ and $|\varepsilon_i|=a_i+b_i$ , i.e. $a_i=(\varepsilon_i)_+=\max\lbrace0,\varepsilon_i\rbrace=|\varepsilon|\cdot\boldsymbol{1}_{\varepsilon_i>0}$ and $b_i=(-\varepsilon_i)_+=\max\lbrace0,-\varepsilon_i\rbrace=|\varepsilon|\cdot\boldsymbol{1}_{\varepsilon_i<0}$ denote respectively the positive and the negative parts.

Unfortunately (that was the error in my previous post), the expression of linear programs is $\min_{\mathbf{z}}\left\lbrace\boldsymbol{c}^\top\mathbf{z}\right\rbrace\text{ s.t. }\boldsymbol{A}\mathbf{z}=\boldsymbol{b},\mathbf{z}\geq\boldsymbol{0}$ In the equation above, with the $a_i$ ‘s and $b_i$ ‘s, we’re not far away. Except that we have $\mu\in\mathbb{R}$ , while it should be positive. So similarly, set $\mu=\mu^+-\mu^-$ where $\mu^+=(\mu)_+$ and $\mu^-=(-\mu)_+$ .

Thus, let $\mathbf{z}=\big(\mu^+;\mu^-;\boldsymbol{a},\boldsymbol{b}\big)^\top\in\mathbb{R}_+^{2n+2}$ and then write the constraint as $\boldsymbol{A}\mathbf{z}=\boldsymbol{b}$ with $\boldsymbol{b}=\boldsymbol{y}$ and $\boldsymbol{A}=\big[\boldsymbol{1}_n;-\boldsymbol{1}_n;\mathbb{I}_n;-\mathbb{I}_n\big]$ And for the objective function $\boldsymbol{c}=\big(\boldsymbol{0},\boldsymbol{1}_n,-\boldsymbol{1}_n\big)^\top\in\mathbb{R}_+^{2n+2}$

To illustrate, consider a sample from a lognormal distribution,

n = 101 
set.seed(1)
y = rlnorm(n)
median(y)
[1] 1.077415

For the optimization problem, use the matrix form, with $3n$ constraints, and $2n+1$ parameters,

library(lpSolve) 
X = rep(1,n) 
A = cbind(X, -X, diag(n), -diag(n))
b = y
c = c(rep(0,2), rep(1,n),rep(1,n))
equal_type = rep("=", n) 
r = lp("min", c,A,equal_type,b)
head(r$solution,1)
[1] 1.077415

It looks like it’s working well…

Quantile

Of course, we can adapt our previous code for quantiles

tau = .3
quantile(y,tau)
      30% 
0.6741586

The linear program is now $\min_{q^+,q^-,\mathbf{a},\mathbf{b}}\left\lbrace\sum_{i=1}^n\tau a_i+(1-\tau)b_i\right\rbrace$ with $a_i,b_i,q^+,q^-\geq 0$ and $y_i=q^+-q^-+a_i-b_i$ , $\forall i=1,\cdots,n$ . The R code is now

c = c(rep(0,2), tau*rep(1,n),(1-tau)*rep(1,n))
r = lp("min", c,A,equal_type,b)
head(r$solution,1)
[1] 0.6741586

So far so good…

Quantile Regression

Consider the following dataset, with rents of flat, in a major German city, as function of the surface, the year of construction, etc.

base=read.table("http://freakonometrics.free.fr/rent98_00.txt",header=TRUE)

The linear program for the quantile regression is now $\min_{\boldsymbol{\beta}^+,\boldsymbol{\beta}^-,\mathbf{a},\mathbf{b}}\left\lbrace\sum_{i=1}^n\tau a_i+(1-\tau)b_i\right\rbrace$ with $a_i,b_i\geq 0$ and $y_i=\boldsymbol{x}^\top[\boldsymbol{\beta}^+-\boldsymbol{\beta}^-]+a_i-b_i$ $\forall i=1,\cdots,n$ and $\beta_j^+,\beta_j^-\geq 0$ $\forall j=0,\cdots,k$ . So use here

require(lpSolve) 
tau = .3
n=nrow(base)
X = cbind( 1, base$area)
y = base$rent_euro
K = ncol(X)
N = nrow(X)
A = cbind(X,-X,diag(N),-diag(N))
c = c(rep(0,2*ncol(X)),tau*rep(1,N),(1-tau)*rep(1,N))
b = base$rent_euro
const_type = rep("=",N)
r = lp("min",c,A,const_type,b)
beta = r$sol[1:K] -  r$sol[(1:K+K)]
beta
[1] 148.946864   3.289674

Of course, we can use R function to fit that model

library(quantreg)
rq(rent_euro~area, tau=tau, data=base)
Coefficients:
(Intercept)        area 
 148.946864    3.289674

Here again, it seems to work quite well. We can use a different probability level, of course, and get a plot

plot(base$area,base$rent_euro,xlab=expression(paste("surface (",m^2,")")),
     ylab="rent (euros/month)",col=rgb(0,0,1,.4),cex=.5)
sf=0:250
yr=r$solution[2*n+1]+r$solution[2*n+2]*sf
lines(sf,yr,lwd=2,col="blue")
tau = .9
r = lp("min",c,A,const_type,b)
tail(r$solution,2)
[1] 121.815505   7.865536
yr=r$solution[2*n+1]+r$solution[2*n+2]*sf
lines(sf,yr,lwd=2,col="blue")

And we can adapt the later to multiple regressions, of course,

X = cbind(1,base$area,base$yearc)
K = ncol(X)
N = nrow(X)
A = cbind(X,-X,diag(N),-diag(N))
c = c(rep(0,2*ncol(X)),tau*rep(1,N),(1-tau)*rep(1,N))
b = base$rent_euro
const_type = rep("=",N)
r = lp("min",c,A,const_type,b)
beta = r$sol[1:K] -  r$sol[(1:K+K)]
beta
[1] -5542.503252     3.978135     2.887234

to be compared with

library(quantreg)
rq(rent_euro~ area + yearc, tau=tau, data=base)
 
Coefficients:
 (Intercept)         area        yearc 
-5542.503252     3.978135     2.887234 
 
Degrees of freedom: 4571 total; 4568 residual

Computer

Quantile Regression (home made)

14/06/2018 Arthur Charpentier 8 Comments

[an updated version is now online here]

After my series of post on classification algorithms, it’s time to get back to R codes, this time for quantile regression. Yes, I still want to get a better understanding of optimization routines, in R. Before looking at the quantile regression, let us compute the median, or the quantile, from a sample.

Median

n = 101 
set.seed(1)
y = rlnorm(n)
median(y)
[1] 1.077415

For the optimization problem, use the matrix form, with $3n$ constraints, and $2n+1$ parameters,

library(lpSolve)
A1 = cbind(diag(2*n),0) 
A2 = cbind(diag(n), -diag(n), 1)
r = lp("min", c(rep(1,2*n),0),
rbind(A1, A2),c(rep("&gt;=", 2*n), rep("=", n)), c(rep(0,2*n), y))
tail(r$solution,1) 
[1] 1.077415

It looks like it’s working well…

Quantile

Of course, we can adapt our previous code for quantiles

tau = .3
quantile(x,tau)
      30% 
0.6741586

The linear program is now $\min_{\mu,\mathbf{a},\mathbf{b}}\left\lbrace\sum_{i=1}^n\tau a_i+(1-\tau)b_i\right\rbrace$ with $a_i,b_i\geq 0$ and $y_i-\mu=a_i-b_i$ , $\forall i=1,\cdots,n$ . The R code is now

A1 = cbind(diag(2*n),0) 
A2 = cbind(diag(n), -diag(n), 1)
r = lp("min", c(rep(tau,n),rep(1-tau,n),0),
rbind(A1, A2),c(rep("&gt;=", 2*n), rep("=", n)), c(rep(0,2*n), y))
tail(r$solution,1) 
[1] 0.6741586

So far so good…

Quantile Regression (simple)

Consider the following dataset, with rents of flat, in a major German city, as function of the surface, the year of construction, etc.

base=read.table("http://freakonometrics.free.fr/rent98_00.txt",header=TRUE)

The linear program for the quantile regression is now $\min_{\mu,\mathbf{a},\mathbf{b}}\left\lbrace\sum_{i=1}^n\tau a_i+(1-\tau)b_i\right\rbrace$ with $a_i,b_i\geq 0$ and $y_i-[\beta_0^\tau+\beta_1^\tau x_i]=a_i-b_i$ $\forall i=1,\cdots,n$ . So use here

require(lpSolve) 
tau = .3
n=nrow(base)
X = cbind( 1, base$area)
y = base$rent_euro
A1 = cbind(diag(2*n), 0,0) 
A2 = cbind(diag(n), -diag(n), X) 
r = lp("min",
       c(rep(tau,n), rep(1-tau,n),0,0), rbind(A1, A2),
       c(rep("&gt;=", 2*n), rep("=", n)), c(rep(0,2*n), y)) 
tail(r$solution,2)
[1] 148.946864   3.289674

Of course, we can use R function to fit that model

library(quantreg)
rq(rent_euro~area, tau=tau, data=base)
Coefficients:
(Intercept)        area 
 148.946864    3.289674

Here again, it seems to work quite well. We can use a different probability level, of course, and get a plot

plot(base$area,base$rent_euro,xlab=expression(paste("surface (",m^2,")")),
     ylab="rent (euros/month)",col=rgb(0,0,1,.4),cex=.5)
sf=0:250
yr=r$solution[2*n+1]+r$solution[2*n+2]*sf
lines(sf,yr,lwd=2,col="blue")
tau = .9
r = lp("min",
       c(rep(tau,n), rep(1-tau,n),0,0), rbind(A1, A2),
       c(rep("&gt;=", 2*n), rep("=", n)), c(rep(0,2*n), y)) 
tail(r$solution,2)
[1] 121.815505   7.865536
yr=r$solution[2*n+1]+r$solution[2*n+2]*sf
lines(sf,yr,lwd=2,col="blue")

Quantile Regression (multiple)

Now that we understand how to run the optimization program with one covariate, why not try with two ? For instance, let us see if we can explain the rent of a flat as a (linear) function of the surface and the age of the building.

require(lpSolve) 
tau = .3
n=nrow(base)
X = cbind( 1, base$area, base$yearc )
y = base$rent_euro
A1 = cbind(diag(2*n), 0,0,0) 
A2 = cbind(diag(n), -diag(n), X) 
r = lp("min",
       c(rep(tau,n), rep(1-tau,n),0,0,0), rbind(A1, A2),
       c(rep("&gt;=", 2*n), rep("=", n)), c(rep(0,2*n), y)) 
tail(r$solution,3)
[1] 0.000000 3.257562 0.077501

Unfortunately, this time, it is not working well…

library(quantreg)
rq(rent_euro~area+yearc, tau=tau, data=base)
Coefficients:
 (Intercept)         area        yearc 
-5542.503252     3.978135     2.887234

Results are quite different. And actually, another technique can confirm the later (IRLS – Iteratively Reweighted Least Squares)

eps = residuals(lm(rent_euro~area+yearc, data=base))
for(s in 1:500){
  reg = lm(rent_euro~area+yearc, data=base, weights=(tau*(eps&gt;0)+(1-tau)*(eps&lt;0))/abs(eps))
  eps = residuals(reg)
}
reg$coefficients
 (Intercept)         area        yearc 
-5484.443043     3.955134     2.857943

I could not figure out what went wrong with the linear program. Not only coefficients are very different, but also predictions…

yr = r$solution[2*n+1]+r$solution[2*n+2]*base$area+r$solution[2*n+3]*base$yearc
plot(predict(reg),yr)
abline(a=0,b=1,lty=2,col="red")

It’s now time to investigate….

Crash courses

Graduate Course on Advanced Tools for Econometrics (2)

25/03/2018 Arthur Charpentier Leave a comment

This Tuesday, I will be giving the second part of the (crash) graduate course on advanced tools for econometrics. It will take place in Rennes, IMAPP room, and I have been told that there will be a visio with Nantes and Angers. Slides for the morning are online, as well as slides for the afternoon.

In the morning, we will talk about variable section and penalization, and in the afternoon, it will be on changing the loss function (quantile regression).

Statistics

Holt-Winters with a Quantile Loss Function

08/01/2018 Arthur Charpentier Leave a comment

Exponential Smoothing is an old technique, but it can perform extremely well on real time series, as discussed in Hyndman, Koehler, Ord & Snyder (2008)),

when Gardner (2005) appeared, many believed that exponential smoothing should be disregarded because it was either a special case of ARIMA modeling or an ad hoc procedure with no statistical rationale. As McKenzie (1985) observed, this opinion was expressed in numerous references to my paper. Since 1985, the special case argument has been turned on its head, and today we know that exponential smoothing methods are optimal for a very general class of state-space models that is in fact broader than the ARIMA class.

Furthermore, I like it because I think it has nice pedagogical features. Consider simple exponential smoothing, $L_{t}=\alpha Y_{t}+(1-\alpha)L_{t-1}$ where $\alpha\in(0,1)$ is the smoothing weight. It is locally constant, in the sense that ${}_{t}\hat Y_{t+h} = L_{t}$

 library(datasets)
 X=as.numeric(Nile)
 SimpleSmooth = function(a){
  T=length(X)
  L=rep(NA,T)
  L[1]=X[1]
  for(t in 2:T){L[t]=a*X[t]+(1-a)*L[t-1]}
  return(L)
 }
 plot(X,type="b",cex=.6)
 lines(SimpleSmooth(.2),col="red")

When using the standard R function, we get

hw=HoltWinters(X,beta=FALSE,gamma=FALSE, l.start=X[1])
hw$alpha
[1] 0.2465579

Of course, one can replicate that optimal value

V=function(a){
     T=length(X)
     L=erreur=rep(NA,T)
     erreur[1]=0
     L[1]=X[1]
     for(t in 2:T){
         L[t]=a*X[t]+(1-a)*L[t-1]
         erreur[t]=X[t]-L[t-1] }
     return(sum(erreur^2))
}
optim(.5,V)$par
[1] 0.2464844

Here, the optimal value for $\alpha$ is the one that minimizes the one-step prediction, for the $\ell_2$ loss function, i.e. $\sum_{t=2}^n(Y_t-{}_{t-1}\hat Y_t)^2$ where here ${}_{t-1}\hat Y_t = L_{t-1}$ . But one can consider another loss function, for instance the quantile loss function, $\ell_{\tau}(\varepsilon)=\varepsilon(\tau-\mathbb{I}_{\varepsilon\leq 0})$ . The optimal coefficient is then obtained using

HWtau=function(tau){
loss=function(e) e*(tau-(e&lt;=0)*1)
 V=function(a){
  T=length(X)
  L=erreur=rep(NA,T)
  erreur[1]=0
  L[1]=X[1]
  for(t in 2:T){
  L[t]=a*X[t]+(1-a)*L[t-1]
  erreur[t]=X[t]-L[t-1] }
 return(sum(loss(erreur)))
 }
 optim(.5,V)$par
}

Here is the evolution of $\alpha^\star_\tau$ as a function of $\tau$ (the level of the quantile considered).

T=(1:49)/50
HW=Vectorize(HWtau)(T)
plot(T,HW,type="l")
abline(h= hw$alpha,lty=2,col="red")

Note that the optimal $\alpha$ is decreasing with $\tau$ . I wonder how general this result can be…

Of course, one can consider more general exponential smoothing, for instance the double one, with $L_t=\alpha Y_t+(1-\alpha)[L_{t-1}+B_{t-1}]$ and $B_t=\beta[L_t-L_{t-1}]+(1-\beta)B_{t-1}$ so that the prediction is now ${}_{t}\hat Y_{t+h} = L_{t}+hB_t$ (it is now locally linear – and no longer constant).

hw=HoltWinters(X,gamma=FALSE,l.start=X[1])
hw$alpha
    alpha 
0.4200241 
hw$beta
      beta 
0.05973389

The code to compute the smoothed series is the following

DoubleSmooth = function(a,b){
  T=length(X)
  L=B=rep(NA,T)
  L[1]=X[1]; B[1]=0
  for(t in 2:T){
  L[t]=a*X[t]+(1-a)*(L[t-1]+B[t-1])
  B[t]=b*(L[t]-L[t-1])+(1-b)*B[t-1] }
 return(L+B)
 }

Here also it is possible to replicate R using the $\ell_2$ loss function

V=function(A){
     a=A[1]
     b=A[2]
     T=length(X)
     L=B=erreur=rep(NA,T)
     erreur[1]=0
     L[1]=X[1]; B[1]=X[2]-X[1]
     for(t in 2:T){
         L[t]=a*X[t]+(1-a)*(L[t-1]+B[t-1])
         B[t]=b*(L[t]-L[t-1])+(1-b)*B[t-1] 
         erreur[t]=X[t]-(L[t-1]+B[t-1]) }
     return(sum(erreur^2))
}
optim(c(.5,.05),V)$par
[1] 0.41904510 0.05988304

(up to numerical optimization approximation, I guess). But here also, a quantile loss function can be considered

HWtau=function(tau){
loss=function(e) e*(tau-(e&lt;=0)*1)
 V=function(A){
  a=A[1]
  b=A[2]
  T=length(X)
  L=B=erreur=rep(NA,T)
  erreur[1]=0
  L[1]=X[1]; B[1]=X[2]-X[1]
  for(t in 2:T){
   L[t]=a*X[t]+(1-a)*(L[t-1]+B[t-1])
   B[t]=b*(L[t]-L[t-1])+(1-b)*B[t-1] 
   erreur[t]=X[t]-(L[t-1]+B[t-1]) }
  return(sum(loss(erreur)))
  }
     optim(c(.5,.05),V)$par
}

and we can plot those values on a graph

T=(1:49)/50
HW=Vectorize(HWtau)(T)
plot(HW[1,],HW[2,],type="l")
abline(v= hw$alpha,lwd=.4,lty=2,col="red")
abline(h= hw$beta,lwd=.4,lty=2,col="red")
points(hw$alpha,hw$beta,pch=19,col="red")

(with $\alpha$ on the $x$ -axis, and $\beta$ on the $y$ -axis). So here, it is extremely simple to change the loss function, but so far, it should be done manually. Of course, one do it also for the seasonal exponential smoothing model.

Publications

Quantile and Expectile Regression for random effects model

24/12/2016 Arthur Charpentier Leave a comment

Our joint paper with Amadou Diogo Barry and Karim Oualkacha is now available on https://hal.archives-ouvertes.fr/hal-01421752

Quantile and expectile regression models pertain to the estimation of unknown quantiles/expectiles of the cumulative distribution function of a dependent variable as a function of a set of covariates and a vector of regression coefficients. Both approaches make no assumption on the shape of the distribution of the response variable, allowing for investigation of a comprehensive class of covariate effects. This paper fits both quantile and expectile regression models within a random effects framework for dependent/panel data. It provides asymptotic properties of the underlying model parameter estimators and suggests appropriate estimators of their variances-covariances matrices. The performance of the proposed estimators is evaluated through exhaustive simulation studies and the proposed methodology is illustrated using real data. The simulation results show that expectile regression is comparable to quantile regression, easily computable and has relevant statistical properties. In conclusion, expectiles are to the mean what quantiles are to the median, and they should be used and interpreted as quantilized mean.

M2-inequalities

Inequalities and Quantile Regression

06/02/2015 Arthur Charpentier 2 Comments

In the course on inequality measure, we’ve seen how to compute various (standard) inequality indices, based on some sample of incomes (that can be binned, in various categories). On Thursday, we discussed the fact that incomes can be related to different variables (e.g. experience), and that comparing income inequalities between coutries can be biased, if they have very different age structures.

So we’ve seen quantile regressions. I can mention some old slides (used in a crash course at McGill three years ago)., as well as a more technical discussion on ties, and non-unicity of the regression line.

In order to illustrate, consider the following dataset

> salary <- read.table("http://data.princeton.edu/wws509/datasets/salary.dat",header=TRUE)
> plot(salary$yd,salary$sl)
> abline(lm(sl~yd,data=salary),col="blue")

We have here the stndard regression line, obtained using ordinary least squares. Here we have the expected income given the experience. But we can also use a quantile regression,

$https://latex.codecogs.com/gif.latex?Q_\tau(Y\vert\boldsymbol{X})=\boldsymbol{X}^{\text{\sffamily%20T}}\boldsymbol{\beta}$

> library(quantreg)
> Q10 <- rq(sl~yd,data=salary,tau=.1)
> Q90 <- rq(sl~yd,data=salary,tau=.9)
> abline(Q10,col="red")
> abline(Q90,col="purple")

A classical tool to describe inequalities is the ratio of the 90% quantile over the 10% quantile (among so many others,

> ratio9010 = function(age){
+   predict(Q90,newdata=data.frame(yd=age))/
+   predict(Q10,newdata=data.frame(yd=age))
+ }

For instance, among people with 5 years of experience, there is an inequality index of

> ratio9010(5)
1.401749

while for people with 30 years of experience, it would be

> ratio9010(30)
1.9488

If we plot the evolution of this 90-10 ratio, as a function of the experience, we get the following increasing trend

> A=0:30
> plot(A,Vectorize(ratio9010)(A),type="l",ylab="90-10 quantile ratio")

So clearly, comparing inequalitis ceteris paribus between two groups, should be performed carefully, and probably including some covariates.

Crash courses, Trip

Graduate Crash Course on Risk Measures

05/05/2014 Arthur Charpentier Leave a comment

Tomorrow morning, I will give a crash course on risk measures at Louvain-la-Neuve, in Belgium. This is a crash course of PhD students (and researchers) with a long introduction on the univariate static framework (and some mathematical tools that will be interesting later on, such as the Fenchel transform and more generally on convexity, as well as some results on optimal transport). I will also mention what was obtained in decision theory, inspired by Itzhak Gilboa‘s Theory of Decision under Uncertainty. Then I will mention extensions to derive multiple risk measures, based on Marc Henry and Alfred Galichon‘s work. Finally, I will conclude by introducing the difficulty to derive dynamic risk measures.

The slides are based on a document I am still working on. And unfortunately, the deeper I get to explain the roots of the axioms, or the assumptions, the more papers I discover (and I need to read, and understand). So I guess I will need some time to finalize my survey. Note that I decided to skip details on technical issues when working on $L^\infty$ , and the weak topology on the dual of $L^\infty$ . I will try to add additional references in the notes, but I wanted the slides to be as simple as possible. I also want to add more connections with statistical results, such as Neyman Pearson’s lemma, for instance (as mentioned in a paper by Alexander Schied). All my apologies for the typos, too.

2013, ACT2040, Actuarial science, GLM, Hiver, IBNR

Overdispersed Poisson et bootstrap

12/04/2013 Arthur Charpentier 6 Comments

Pour le dernier cours sur les méthodes de provisionnement, on s’est arrête aux méthodes par simulation. Reprenons là où on en était resté au dernier billet où on avait vu qu’en faisant une régression de Poisson sur les incréments, on obtenait exactement le même montant que la méthode Chain Ladder,

> Y
     [,1] [,2] [,3] [,4] [,5] [,6]
[1,] 3209 1163   39   17    7   21
[2,] 3367 1292   37   24   10   NA
[3,] 3871 1474   53   22   NA   NA
[4,] 4239 1678  103   NA   NA   NA
[5,] 4929 1865   NA   NA   NA   NA
[6,] 5217   NA   NA   NA   NA   NA

> y=as.vector(as.matrix(Y))
> base=data.frame(y,ai=rep(2000:2005,n),bj=rep(0:(n-1),each=n))
> reg2=glm(y~as.factor(ai)+as.factor(bj),data=base,family=poisson) 
> summary(reg2)

Call:
glm(formula = y ~ as.factor(ai) + as.factor(bj), family = poisson, 
    data = base)

Coefficients:
                  Estimate Std. Error z value Pr(>|z|)    
(Intercept)        8.05697    0.01551 519.426  < 2e-16 ***
as.factor(ai)2001  0.06440    0.02090   3.081  0.00206 ** 
as.factor(ai)2002  0.20242    0.02025   9.995  < 2e-16 ***
as.factor(ai)2003  0.31175    0.01980  15.744  < 2e-16 ***
as.factor(ai)2004  0.44407    0.01933  22.971  < 2e-16 ***
as.factor(ai)2005  0.50271    0.02079  24.179  < 2e-16 ***
as.factor(bj)1    -0.96513    0.01359 -70.994  < 2e-16 ***
as.factor(bj)2    -4.14853    0.06613 -62.729  < 2e-16 ***
as.factor(bj)3    -5.10499    0.12632 -40.413  < 2e-16 ***
as.factor(bj)4    -5.94962    0.24279 -24.505  < 2e-16 ***
as.factor(bj)5    -5.01244    0.21877 -22.912  < 2e-16 ***
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1 

(Dispersion parameter for poisson family taken to be 1)

    Null deviance: 46695.269  on 20  degrees of freedom
Residual deviance:    30.214  on 10  degrees of freedom
  (15 observations deleted due to missingness)
AIC: 209.52

Number of Fisher Scoring iterations: 4

> base$py2=predict(reg2,newdata=base,type="response")
> round(matrix(base$py2,n,n),1)
       [,1]   [,2] [,3] [,4] [,5] [,6]
[1,] 3155.7 1202.1 49.8 19.1  8.2 21.0
[2,] 3365.6 1282.1 53.1 20.4  8.8 22.4
[3,] 3863.7 1471.8 61.0 23.4 10.1 25.7
[4,] 4310.1 1641.9 68.0 26.1 11.2 28.7
[5,] 4919.9 1874.1 77.7 29.8 12.8 32.7
[6,] 5217.0 1987.3 82.4 31.6 13.6 34.7

> sum(base$py2[is.na(base$y)])
[1] 2426.985

Le plus intéressant est peut être de noter que la loi de Poisson présente probablement trop peu de variance…

> reg2b=glm(y~as.factor(ai)+as.factor(bj),data=base,family=quasipoisson)
> summary(reg2)

Call:
glm(formula = y ~ as.factor(ai) + as.factor(bj), family = quasipoisson, 
    data = base)

Coefficients:
                  Estimate Std. Error t value Pr(>|t|)    
(Intercept)        8.05697    0.02769 290.995  < 2e-16 ***
as.factor(ai)2001  0.06440    0.03731   1.726 0.115054    
as.factor(ai)2002  0.20242    0.03615   5.599 0.000228 ***
as.factor(ai)2003  0.31175    0.03535   8.820 4.96e-06 ***
as.factor(ai)2004  0.44407    0.03451  12.869 1.51e-07 ***
as.factor(ai)2005  0.50271    0.03711  13.546 9.28e-08 ***
as.factor(bj)1    -0.96513    0.02427 -39.772 2.41e-12 ***
as.factor(bj)2    -4.14853    0.11805 -35.142 8.26e-12 ***
as.factor(bj)3    -5.10499    0.22548 -22.641 6.36e-10 ***
as.factor(bj)4    -5.94962    0.43338 -13.728 8.17e-08 ***
as.factor(bj)5    -5.01244    0.39050 -12.836 1.55e-07 ***
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1 

(Dispersion parameter for quasipoisson family taken to be 3.18623)

    Null deviance: 46695.269  on 20  degrees of freedom
Residual deviance:    30.214  on 10  degrees of freedom
  (15 observations deleted due to missingness)
AIC: NA

Number of Fisher Scoring iterations: 4

Mais on en reparlera dans un instant. Ensuite, on avait commencé à regarder erreurs commises, sur la partie supérieure du triangle. Classiquement, par construction, les résidus de Pearson sont de la forme

$https://latex.codecogs.com/gif.latex?\varepsilon_i=\frac{Y_i-\widehat{Y}_i}{\sqrt{\text{Var}(Y_i)}}$

On avait vu dans le cours de tarification que la variance au dénominateur pouvait être remplacé par le prévision, puisque dans un modèle de Poisson, l’espérance et la variance sont identiques. Donc on considérait

$https://latex.codecogs.com/gif.latex?\varepsilon_i=\frac{Y_i-\widehat{Y}_i}{\sqrt{\widehat{Y}_i}}$

> base$erreur=(base$y-base$py2)/sqrt(base$py2)
> round(matrix(base$erreur,n,n),1)
     [,1] [,2] [,3] [,4] [,5] [,6]
[1,]  0.9 -1.1 -1.5 -0.5 -0.4    0
[2,]  0.0  0.3 -2.2  0.8  0.4   NA
[3,]  0.1  0.1 -1.0 -0.3   NA   NA
[4,] -1.1  0.9  4.2   NA   NA   NA
[5,]  0.1 -0.2   NA   NA   NA   NA
[6,]  0.0   NA   NA   NA   NA   NA

Le soucis est que si $https://latex.codecogs.com/gif.latex?\widehat{Y}_i$ est – asymptotiquement – un bon estimateur pour $https://latex.codecogs.com/gif.latex?\text{Var}(Y_i)$ , ce n’est pas le cas à distance finie, car on a alors un estimateur biaisé pour la variance, et donc la variance des résidus n’a que peu de chances d’être de variance unitaire. Aussi, il convient de corriger l’estimateur de la variance, et on pose alors

$https://latex.codecogs.com/gif.latex?\varepsilon_i=\sqrt{\frac{n}{n-k}}\cdot\frac{Y_i-\widehat{Y}_i}{\sqrt{\widehat{Y}_i}}$

qui sont alors les résidus de Pearson tel qu’on doit les utiliser.

> E=base$erreur[is.na(base$y)==FALSE]*sqrt(21/(21-11))
> E
 [1]  1.374976e+00  3.485024e-02  1.693203e-01 -1.569329e+00  1.887862e-01
 [6] -1.459787e-13 -1.634646e+00  4.018940e-01  8.216186e-02  1.292578e+00
[11] -3.058764e-01 -2.221573e+00 -3.207593e+00 -1.484151e+00  6.140566e+00
[16] -7.100321e-01  1.149049e+00 -4.307387e-01 -6.196386e-01  6.000048e-01
[21] -8.987734e-15
> boxplot(E,horizontal=TRUE)

En rééchantillonnant dans ces résidus, on peut alors générer un pseudo triangle. Pour des raisons de simplicités, on va générer un peu rectangle, et se restreindre à la partie supérieure,

> Eb=sample(E,size=36,replace=TRUE)
> Yb=base$py2+Eb*sqrt(base$py2)
> Ybna=Yb
> Ybna[is.na(base$y)]=NA
> Tb=matrix(Ybna,n,n)
> round(matrix(Tb,n,n),1)
       [,1]   [,2] [,3] [,4] [,5] [,6]
[1,] 3115.8 1145.4 58.9 46.0  6.4 26.9
[2,] 3179.5 1323.2 54.5 21.3 12.2   NA
[3,] 4245.4 1448.1 61.0  7.9   NA   NA
[4,] 4312.4 1581.7 68.7   NA   NA   NA
[5,] 4948.1 1923.9   NA   NA   NA   NA
[6,] 4985.3     NA   NA   NA   NA   NA

Cette fois, on a un nouveau triangle ! on va alors pouvoir faire plusieurs choses,

compléter le triangle para la méthode Chain Ladder, c’est à dire calculer les montants moyens que l’on pense payer dans les années futures
générer des scénarios de paiements pour les années futurs, en générant des paiements suivant des lois de Poisson (centrées sur les montants moyens que l’on vient de calculer)
générer des scénarios de paiements avec des lois présentant plus de variance que la loi de Poisson. Idéalement, on voudrait simuler des lois qusi-Poisson, mais ce ne sont pas de vraies lois. Par contre, on peut se rappeler que dans ce cas, la loi Gamma devrait donner une bonne approximation.

Pour ce dernier point, on va utiliser le code suivant, pour générer des quasi lois,

> rqpois = function(n, lambda, phi, roundvalue = TRUE) {
+ b = phi
+ a = lambda/phi
+ r = rgamma(n, shape = a, scale = b)
+ if(roundvalue){r=round(r)}
+ return(r)
+ }

Je renvois aux diverses notes de cours pour plus de détails sur la justification, ou à un vieux billet. On va alors faire une petite fonction, qui va soit somme les paiements moyens futurs, soit sommer des générations de scénarios de paiements, à partir d’un triangle,

> CL=function(Tri){
+ y=as.vector(as.matrix(Tri))
+ base=data.frame(y,ai=rep(2000:2005,n),bj=rep(0:(n-1),each=n))
+ reg=glm(y~as.factor(ai)+as.factor(bj),data=base,family=quasipoisson)
+ py2=predict(reg,newdata=base,type="response")
+ pys=rpois(36,py2)
+ pysq=rqpois(36,py2,phi=3.18623)
+ return(list(
+ cl=sum(py2[is.na(base$y)]),
+ sc=sum(pys[is.na(base$y)]),
+ scq=sum(pysq[is.na(base$y)])))
+ }

Reste alors à générer des paquets de triangles. Toutefois, il est possible de générer des triangles avec des incréments négatifs. Pour faire simple, on mettra des valeurs nulles quand on a un paiement négatif. L’impact sur les quantiles sera alors (a priori) négligeable.

> for(s in 1:1000){
+ Eb=sample(E,size=36,replace=TRUE)*sqrt(21/(21-11))
+ Yb=base$py2+Eb*sqrt(base$py2)
+ Yb=pmax(Yb,0)
+ scY=rpois(36,Yb)
+ Ybna=Yb
+ Ybna[is.na(base$y)]=NA
+ Tb=matrix(Ybna,6,6)
+ C=CL(Tb)
+ VCL[s]=C$cl
+ VR[s]=C$sc
+ VRq[s]=C$scq
+ }

Si on regarde la distribution du best estimate, on obtient

> hist(VCL,proba=TRUE,col="light blue",border="white",ylim=c(0,0.003))
> boxplot(VCL,horizontal=TRUE,at=.0023,boxwex = 0.0006,add=TRUE,col="light green")
> D=density(VCL)
> lines(D)
> I=which(D$x<=quantile(VCL,.05))
> polygon(c(D$x[I],rev(D$x[I])),c(D$y[I],rep(0,length(I))),col="blue",border=NA)
> I=which(D$x>=quantile(VCL,.95))
> polygon(c(D$x[I],rev(D$x[I])),c(D$y[I],rep(0,length(I))),col="blue",border=NA)

Mais on peut aussi visualiser des scénarios basés sur des lois de Poisson (équidispersé) ou des scénarios de lois quasiPoisson (surdispersées), ci-dessous

Dans ce dernier cas, on peut en déduire le quantile à 99% des paiements à venir.

> quantile(VRq,.99)
    99% 
2855.01

Il faut donc augmenter le montant de provisions de l’ordre 15% pour s’assurer que la compagnie pourra satisfaire ses engagements dans 99% des cas,

> quantile(VRq,.99)-2426.985
    99% 
428.025

Computer, Research

Short versus long papers, in academic journals

25/04/2012 Arthur Charpentier Leave a comment

This Monday, during my talk on quantile regressions (at the Montreal R-meeting), we’ve seen how those nice graphs could be interpreted, with the evolution of the slope of the linear regression, as a function of the probability level. One illustration was on large hurricanes, from Elsner, Kossin & Jagger (2008). The other one was on birthweight, from Abrevaya (2001).

It is also to illustrate that technique to academic publication, e.g. the length of papers, over time. Actually, the data we can extract from Scopus are quite similar to the ones uses on hurricanes. For several journals, it is possible to look at the length of articles. Since Scopus is quite expensive ($60,000 per year for the campus, as far as remember, so I can imagine the penalty I might have to pay for sharing such a dataset)

base=read.table("/home/scopus.csv",
header=TRUE,sep=",")
pages=base$Page.end-base$Page.start
year=base$Year

Again, a first idea can be to look at boxplots, and regression on (nonparametric) quantiles, here for Econometrica,

boxplot(pages~as.factor(year),col="light blue")
Q=function(p=.9) as.vector(by(pages,as.factor(year),
function(x) quantile(x,p)))
u=1:16
points(u,Q(p),pch=19,col="blue")
abline(lm(Q(p)~u,weights=table(year)),lwd=2,col="blue")

Consider now (as in the slides in the previous post) a quantile regression (instead of a regression on quantiles), for instance in the Annals of Probability,

library(quantreg)
u=seq(.05,.95,by=.01)
coefstd=function(u) summary(rq(pages~year,
tau=u))$coefficients[,2]
coefest=function(u) summary(rq(pages~year,
tau=u))$coefficients[,1]
CS=Vectorize(coefstd)(u)
CE=Vectorize(coefest)(u)
k=2
plot(u,CE[k,],ylim=c(min(CE[k,]-2*CS[k,]),
max(CE[k,]+2*CS[k,])))
polygon(c(u,rev(u)),c(CE[k,]+1.96*CS[k,],
rev(CE[k,]-1.96*CS[k,])),
col="light green",border=NA)
lines(u,CE[k,],lwd=2,col="red")
abline(h=0)

We have the following slope, for the year, as a function of the probability level,

The slope is always positive, so size of papers is increasing with time, short and long papers. But the influence of time is much larger for long paper than short one: for short papers (lower decile) every year, the size keeps increasing, with one more page every three years. For long paper (upper decile), it is two more pages every three years.

If we look now at the Annals of Statistics, we have

and for the evolution of the slope of the quantile regression,

Again the impact is positive: papers are longer in 2010 than 15 years ago. But the trend is the reverse: short papers (lower decile) are much longer, almost one more page every year, with long paper increase only by one more page every two years… Initially, I want to run such a study on a much longer term, with quantile regressions and splines to see when there might have been a change, both in lower and upper tails. Unfortunately, as suggested by some colleagues, there might have been some changes in the format of the journal (columns, margins, fonts, etc). That’s a shame, because I rediscover nice short papers of 5-10 pages published 20 or 30 years ago. They are nice to read (and also potentially interesting for a post on the blog). 5 pages, that’s perfect, but 40 pages, that’s way too long. I wonder if I am the only one having this feeling, missing those short but extremely interesting papers….

Statistics

Régression médiane et géométrie

24/04/2012 Arthur Charpentier Leave a comment

Suite à mon exposé d’hier, Pierre me demandait d’argumenter un point que j’avais évoqué oralement sans le justifier: “ une régression médiane passe forcément par deux points du nuage “. Par exemple,

x=c(1,2,3)
y=c(3,7,8)
plot(x,y,pch=19,cex=1.5,xlim=c(0,4),ylim=c(0,10))
library(quantreg)
abline(rq(y~x,tau=.5),col="red")

Essayons de le justifier… de manière un peu heuristique. Commençons un peu au hasard, avec une droite qui passe “entre” les points (on admettra que la régression médiane sépare l’espace en deux, avec la moitié des points en dessous, la moitié au dessus, à un près pour des histoires de parité).

plot(x,y,pch=19,cex=1.5,xlim=c(0,4),ylim=c(0,10))
abline(a=-1,b=3.2,col="blue")

c’est joli, mais on peut sûrement faire mieux. En particulier, on va chercher ici à minimiser la somme des valeurs absolue des erreurs (c’est le principe de la régression médiane). Essayons de translater la courbe, vers le haut, ou vers le bas,

plot(x,y,pch=19,cex=1.5,xlim=c(0,4),ylim=c(0,10))
abline(a=-1,b=3.2,col="blue",lwd=2)
for(i in seq(-2,3,by=.5)){
abline(a=i,b=3.2,col="blue",lty=2)}

Si on regarde ce que vaut la somme des valeurs absolues des erreurs, on a

d=function(h) sum(abs(y-(h+3.2*x)))
H=seq(-4,6,by=.01)
D=Vectorize(d)(H)
plot(H,D,type="l")

Formellement, l’optimum est ici

> optimize(d,lower=-5,upper=5)
$minimum
[1] -0.2000091

$objective
[1] 2.200009

Bref, retenons cette courbe, et notons qu’elle passe par un des points,

Et c’est assez normal. On commençait avec deux points au dessus, et un en dessous. Soit la somme des valeurs absolues des erreurs . Si on translate de , on passe de à (tant que l’on a toujours deux points au dessus, car celui en dessous sera toujours en dessous). Si on translate de , (là encore tant qu’il n’y a qu’un point en dessous). Bref, on a intérêt à translater vers le haut. Si on dépasse le premier point rencontré, on se retrouve dans la situation inverse, avec un point au dessus et deux au dessous, et on a intérêt à redescendre. Bref, la translation optimale revient a s’arrêter dès qu’on croise un point. Autrement dit, la régression passe forcément par un point. Au moins.

Maintenant, essayons de faire pivoter la courbe autour de ce point, là encore afin de minimiser la somme des valeurs absolues des erreurs,

plot(x,y,pch=19,cex=1.5,xlim=c(0,4),ylim=c(0,10))
abline(a=optimize(d,lower=-5,upper=5)$minimum,b=3.2,
col="blue",lwd=2)
points(x[1],y[1],cex=1.8,lwd=2,col="blue")
for(i in seq(-1,5,by=.25)){
abline(a=(y[1]-i*x[1]),b=i,col="blue",lty=2)}

La distance est alors, en fonction de la pente de la droite

d2=function(h) sum(abs(y-((y[1]-h*x[1])+h*x)))
H=seq(-4,6,by=.01)
D=Vectorize(d2)(H)
plot(H,D,type="l")

Là encore on peut formaliser un peu

> optimize(d2,lower=-5,upper=5)
$minimum
[1] 2.500018

$objective
[1] 1.500018

Et si on regarde cette dernière droite, on passe par deux points,

plot(x,y,pch=19,cex=1.5,xlim=c(0,4),ylim=c(0,10))
h=optimize(d2,lower=-5,upper=5)$minimum
abline(a=(y[1]-h*x[1]),
b=h,col="purple",lwd=2)

Pour comprendre pourquoi, comparons les deux cas,

en faisant un pivot vers le bas, pour un des points, la valeur absolue des erreurs augmente alors que pour l’autre, elle diminue

en faisant un pivot vers le haut, là encore pour un des points, la valeur absolue des erreurs augmente alors que pour l’autre, elle diminue, mais en sens inverse par rapport au cas précédent,

Et pour faire simple, dans le premier cas, le gain (sur la baisse) compense la perte, alors que dans le second cas, c’est le contraire. Bref, on a intérêt à pivoter vers le bas, ou vers le point à droite. Jusqu’à l’atteindre. Et optimalement, on passera par ce point. Bref, on passera par deux points. Et je laisse les plus courageux regarder avec plus de trois points, mais c’est toujours pareil…

Computer, Conferences, Statistics

Talk on quantiles at the R Montreal group

23/04/2012 Arthur Charpentier 1 Comment

This afternoon, I will be giving a two-hour talk at McGill on quantiles, quantile regressions, confidence regions, bagplots and outliers. Before defining (properly) quantile regressions, we will mention regression on (local) quantiles, as on the graph below, on hurricanes,

In order to illustrate quantile regression, consider the following natality database,

base=read.table(
"http://freakonometrics.free.fr/natality2005.txt",
header=TRUE,sep=";")

We can use it produce those nice graphs we can find in several papers, modeling weight of newborns,

u=seq(.05,.95,by=.01)
coefstd=function(u) summary(rq(WEIGHT~SEX+
SMOKER+WEIGHTGAIN+BIRTHRECORD+AGE+ BLACKM+
BLACKF+COLLEGE,data=base,tau=u))$coefficients[,2]
coefest=function(u) summary(rq(WEIGHT~SEX+
SMOKER+WEIGHTGAIN+BIRTHRECORD+AGE+ BLACKM+
BLACKF+COLLEGE,data=base,tau=u))$coefficients[,1]
CS=Vectorize(coefstd)(u)
CE=Vectorize(coefest)(u)

The slides can be downloaded on the blog, as well as the R-code.

Copulas, MAT8886, Statistics

Exchangeability, credit risk and risk measures

10/02/2012 Arthur Charpentier 2 Comments

Exchangeability is an extremely concept, since (most of the time) analytical expressions can be derived. But it can also be used to observe some unexpected behaviors, that we will discuss later on with a more general setting. For instance, in a old post, I discussed connexions between correlation and risk measures (using simulations to illustrate, but in the context of exchangeable risk, calculations can be performed more accurately). Consider again the standard credit risk problem, where the quantity of interest is the number of defaults in a portfolio. Consider an homogeneous portfolio of exchangeable risk. The quantity of interest is here

or perhaps the quantile function of the sum (since the Value-at-Risk is the standard risk measure). We have seen yesterday that – given the latent factor – (either the company defaults, or not), so that

i.e. we can derive the (unconditional) distribution of the sum

so that the probability function of the sum is, assuming that

Thus, the following code can be used to calculate the quantile function

> proba=function(s,a,m,n){
+ b=a/m-a
+ choose(n,s)*integrate(function(t){t^s*(1-t)^(n-s)*
+ dbeta(t,a,b)},lower=0,upper=1,subdivisions=1000,
+ stop.on.error =  FALSE)$value
+ }
> QUANTILE=function(p=.99,a=2,m=.1,n=500){
+ V=rep(NA,n+1)
+ for(i in 0:n){
+ V[i+1]=proba(i,a,m,n)}
+ V=V/sum(V)
+ return(min(which(cumsum(V)>p))) }

Now observe that since variates are exchangeable, it is possible to calculate explicitly correlations of defaults. Here

i.e.

Thus, the correlation between two default indicators is then

Under the assumption that the latent factor is beta distributed

we get

Thus, as a function of the parameter of the beta distribution (we consider beta distributions with the same mean, i.e. the same margin distributions, so we have only one parameter left, with is simply the correlation of default indicators), it is possible to plot the quantile function,

> PICTURE=function(P){
+ A=seq(.01,2,by=.01)
+ VQ=matrix(NA,length(A),5)
+ for(i in 1:length(A)){
+ VQ[i,1]=QUANTILE(a=A[i],p=.9,m=P)
+ VQ[i,2]=QUANTILE(a=A[i],p=.95,m=P)
+ VQ[i,3]=QUANTILE(a=A[i],p=.975,m=P)
+ VQ[i,4]=QUANTILE(a=A[i],p=.99,m=P)
+ VQ[i,5]=QUANTILE(a=A[i],p=.995,m=P)
+ }
+ plot(A,VQ[,5],type="s",col="red",ylim=
+ c(0,max(VQ)),xlab="",ylab="")
+ lines(A,VQ[,4],type="s",col="blue")
+ lines(A,VQ[,3],type="s",col="black")
+ lines(A,VQ[,2],type="s",col="blue",lty=2)
+ lines(A,VQ[,1],type="s",col="red",lty=2)
+ lines(A,rep(500*P,length(A)),col="grey")
+ legend(3,max(VQ),c("quantile 99.5%","quantile 99%",
+ "quantile 97.5%","quantile 95%","quantile 90%","mean"),
+ col=c("red","blue","black",
+"blue","red","grey"),
+ lty=c(1,1,1,2,2,1),border=n)
+}

e.g. with a (marginal) default probability of 15%,

> PICTURE(.15)

On this graph, we observe that the stronger the correlation (the more on the left), the higher the quantile… Note that the same graph can be plotted with on the X-axis the correlation,

Which is quite intuitive, somehow. But if the marginal probability of default decreases, increasing the correlation might decrease the risk (i.e. the quantile function),

> PICTURE(.05)

(with the modified code to visualize the quantile as a function of the underlying default correlation) or even worse,

> PICTURE(.0075)

And it because all the more counterintuitive that the default probability decreases ! So in the case of a portfolio of non-very risky bond issuers (with high ratings), assuming a very strong correlation will lower risk based capital !

Extreme Value, MAT8886

MAT8886 from tail estimation to risk measure(s) estimation

09/02/2012 Arthur Charpentier Leave a comment

This week, we conclude the part on extremes with an application of extreme value theory to risk measures. We have seen last week that, if we assume that above a threshold , a Generalized Pareto Distribution will fit nicely, then we can use it to derive an estimator of the quantile function (for percentages such that the quantile is larger than the threshold)

It the threshold is , i.e. we keep the largest observations to fit a GPD, then this estimator can be written

The code we wrote last week was the following (here based on log-returns of the SP500 index, and we focus on large losses, i.e. large values of the opposite of log returns, plotted below)

> library(tseries)
> X=get.hist.quote("^GSPC")
> T=time(X)
> D=as.POSIXlt(T)
> Y=X$Close
> R=diff(log(Y))
> D=D[-1]
> X=-R
> plot(D,X)
> library(evir)
> GPD=gpd(X,quantile(X,.975))
> xi=GPD$par.ests[1]
> beta=GPD$par.ests[2]
> u=GPD$threshold
> QpGPD=function(p){
+ u+beta/xi*((100/2.5*(1-p))^(-xi)-1)
+ }
> QpGPD(1-1/250)
97.5%
0.04557386
> QpGPD(1-1/2500)
97.5%
0.08925095

This is similar with the following outputs, with the return period of a yearly event (one observation out of 250 trading days)

> gpd.q(tailplot(gpd(X,quantile(X,.975))), 1-1/250, ci.type =
+ "likelihood", ci.p = 0.95,like.num = 50)
Lower CI   Estimate   Upper CI
0.04172534 0.04557655 0.05086785

or the decennial one

> gpd.q(tailplot(gpd(X,quantile(X,.975))), 1-1/2500, ci.type =
+ "likelihood", ci.p = 0.95,like.num = 50)
Lower CI   Estimate   Upper CI
0.07165395 0.08925558 0.13636620

Note that it is also possible to derive an estimator for another population risk measure (the quantile is simply the so-called Value-at-Risk), the expected shortfall (or Tail Value-at-Risk), i.e.

The idea is to write that expression

so that we recognize the mean excess function (discussed earlier). Thus, assuming again that above (and therefore above that high quantile) a GPD will fit, we can write

or equivalently

If we substitute estimators to unknown quantities on that expression, we get

The code is here

> EpGPD=function(p){
+ u-beta/xi+beta/xi/(1-xi)*(100/2.5*(1-p))^(-xi)
+ }
> EpGPD(1-1/250)
97.5%
0.06426508
> EpGPD(1-1/2500)
97.5%
0.1215077

An alternative is to use Hill’s approach (used to derive Hill’s estimator). Assume here that , where is a slowly varying function. Then, for all ,

Since is a slowly varying function, it seem natural to assume that this ratio is almost 1 (which is true asymptotically). Thus

i.e. if we invert that function, we derive an estimator for the quantile function

which can also be written

(which is close to the relation we derived using a GPD model). Here the code is

> k=trunc(length(X)*.025)
> Xs=rev(sort(as.numeric(X)))
> xiHill=mean(log(Xs[1:k]))-log(Xs[k+1])
> u=Xs[k+1]
> QpHill=function(p){
+ u+u*((100/2.5*(1-p))^(-xiHill)-1)
+ }

with the following Hill plot

For yearly and decennial events, we have here

> QpHill(1-1/250)
[1] 0.04580548
> QpHill(1-1/2500)
[1] 0.1010204

Those quantities seem consistent since they are quite close, but they are different compared with empirical quantiles,

> quantile(X,1-1/250)
99.6%
0.04743929
> quantile(X,1-1/2500)
99.96%
0.09054039

Note that it is also possible to use some functions to derive estimators of those quantities,

> riskmeasures(gpd(X,quantile(X,.975)),1-1/250)
p   quantile      sfall
[1,] 0.996 0.04557655 0.06426859
> riskmeasures(gpd(X,quantile(X,.975)),1-1/2500)
p   quantile     sfall
[1,] 0.9996 0.08925558 0.1215137

(in this application, we have assumed that log-returns were independent and identically distributed… which might be a rather strong assumption).

MAT8886, Statistics

Delta method and quantile estimation

08/02/2012 Arthur Charpentier 1 Comment

An alternative (to profile likelihood techniques) to derive confidence intervals is to use the delta method. Consider an estimator such that

then for any differentiable transformation

The proof of that result is based on Taylor’s expansion (see here or there for more details on the theory, or even on this blog – here, in French or there in English – for some codes in R). This can be used to derive an asymptotic confidence interval for a quantile. Consider the following dataset

> base1=read.table(
+ "http://freakonometrics.free.fr/danish-univariate.txt",
+ header=TRUE)
> library(evir)
> X=base1$Loss.in.DKM

It is possible to fit a Generalized Pareto distribution on observations above a given threshold,

In that case, if exceed the threshold out of a sample of size , the estimator of the quantile

i.e. . Then

while

i.e. it is now possible to implement the delta-method to derive the asymptotic variance of the quantile, and also (asymptotic) confidence intervals.

> u=5
> GPD=gpd(X,u)
> theta=GPD$par.ests
> sigma=GPD$varcov
> k=GPD$n.exceed
> n=length(X)
> p=.975
> Q=u+theta[2]/theta[1]*((n*(1-p)/k)^(-theta[1])-1)
> nabla=c(-theta[2]/theta[1]^2*((1-p)^(-theta[1])-1)-
+ theta[2]/theta[1]*(1-p)^(-theta[1]*log(1-p)),
+ 1/theta[1]*((1-p)^(-theta[1])-1))
> variance=t(nabla)%*%sigma%*%nabla

Based on the assumption of normality, it is possible to derive confidence intervals, and to compare them with the one obtained in R,

> c(Q-1.96/sqrt(k)*sqrt(variance),
+   Q+1.96/sqrt(k)*sqrt(variance))
[1] 13.11562 16.82852
+ tailplot(gpd(X,5))
+ gpd.q(tailplot(gpd(X,5)), .975, ci.type =
+ "likelihood", ci.p = 0.95,like.num = 50)
Lower CI Estimate Upper CI
13.33329 14.97207 17.18094

Freakonometrics

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