Disadvantages Of Extreme Value Theory

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5.1 ADVANTAGES AND DISADVANTAGES OF THE EXTREME VALUE THEORY

The extreme value theory has a number of advantages that has popularized its utility in the field of science, hydrology, finance, insurance, structural engineering, finance, earth sciences, traffic prediction, and geological engineering, etc. They provide a robust means of modeling the extreme events without there being a need of making strong assumptions about the process that is generating the data. Also, their use is justified by a rigorous body of mathematical theory. Such processes reflect many of the uncertainties that are involved in the modeling of rare events. They provide a straightforward application to the data relative to many other statistical methods. However, there …show more content…

This creates serious implications that the extreme value theory will be appropriate only if the dataset is reasonably large. They have been used in disciplines where large amounts of data are routinely collected such as finance and oceanography and rarely used in fields like ecology and medicine where the data is expensive to be collected and also difficult to be achieved. Also, in models where there is a very strong reason to believe that the distribution to be used for modeling is say, normal distribution then the results obtained from that will be better than the use of the extreme value methods. In many applications, however, the user may have a large dataset and no strong reason to believe a priori that these data should follow any particular distribution. In these circumstances, extreme value methods provide a powerful and robust approach for assessing the probabilities associated with very rare events. Extreme value methods do depend upon certain assumptions, however, and it is always important to check that these assumptions are likely to be reasonable for the dataset at hand. Therefore, the extreme value methods are designed to answer intrinsically difficult questions because they can relate to the …show more content…

Weather and seasonal predictions: The extreme value theory is used to find the probabilistic estimates of the extreme maximum rainfall or temperature for a location. The theory fits the model and tries to capture the uncertainty of data and fits the Generalized Pareto distribution or the Generalized Extreme Value distribution to the underlying data. A major threat to the components of ecosystems is manifested locally via the changes in the regional extreme weather and climate events due to high temperature or flood due to extreme rainfall. The extreme value theory deals with the stochastic behavior of the extreme values in a process where the behavior of the maxima can be described. An accurate estimate of the frequency and the distribution of these events can significantly provide an aid in policy planning and observation system

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