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Hill Estimator
In probability theory, heavy-tailed distributions are probability distributions whose tails are not exponentially bounded: that is, they have heavier tails than the exponential distribution. In many applications it is the right tail of the distribution that is of interest, but a distribution may have a heavy left tail, or both tails may be heavy. There are three important subclasses of heavy-tailed distributions: the fat-tailed distributions, the long-tailed distributions and the subexponential distributions. In practice, all commonly used heavy-tailed distributions belong to the subexponential class. There is still some discrepancy over the use of the term heavy-tailed. There are two other definitions in use. Some authors use the term to refer to those distributions which do not have all their power moments finite; and some others to those distributions that do not have a finite variance. The definition given in this article is the most general in use, and includes all dist ...
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Probability Theory
Probability theory is the branch of mathematics concerned with probability. Although there are several different probability interpretations, probability theory treats the concept in a rigorous mathematical manner by expressing it through a set of axioms. Typically these axioms formalise probability in terms of a probability space, which assigns a measure taking values between 0 and 1, termed the probability measure, to a set of outcomes called the sample space. Any specified subset of the sample space is called an event. Central subjects in probability theory include discrete and continuous random variables, probability distributions, and stochastic processes (which provide mathematical abstractions of non-deterministic or uncertain processes or measured quantities that may either be single occurrences or evolve over time in a random fashion). Although it is not possible to perfectly predict random events, much can be said about their behavior. Two major results in probability ...
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Pareto Distribution
The Pareto distribution, named after the Italian civil engineer, economist, and sociologist Vilfredo Pareto ( ), is a power-law probability distribution that is used in description of social, quality control, scientific, geophysical, actuarial, and many other types of observable phenomena; the principle originally applied to describing the distribution of wealth in a society, fitting the trend that a large portion of wealth is held by a small fraction of the population. The Pareto principle or "80-20 rule" stating that 80% of outcomes are due to 20% of causes was named in honour of Pareto, but the concepts are distinct, and only Pareto distributions with shape value () of log45 ≈ 1.16 precisely reflect it. Empirical observation has shown that this 80-20 distribution fits a wide range of cases, including natural phenomena and human activities. Definitions If ''X'' is a random variable with a Pareto (Type I) distribution, then the probability that ''X'' is ...
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Student's T-distribution
In probability and statistics, Student's ''t''-distribution (or simply the ''t''-distribution) is any member of a family of continuous probability distributions that arise when estimating the mean of a normally distributed population in situations where the sample size is small and the population's standard deviation is unknown. It was developed by English statistician William Sealy Gosset under the pseudonym "Student". The ''t''-distribution plays a role in a number of widely used statistical analyses, including Student's ''t''-test for assessing the statistical significance of the difference between two sample means, the construction of confidence intervals for the difference between two population means, and in linear regression analysis. Student's ''t''-distribution also arises in the Bayesian analysis of data from a normal family. If we take a sample of n observations from a normal distribution, then the ''t''-distribution with \nu=n-1 degrees of freedom can be de ...
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Financial Models With Long-tailed Distributions And Volatility Clustering
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of financial economics bridges the two). Finance activities take place in financial systems at various scopes, thus the field can be roughly divided into personal, corporate, and public finance. In a financial system, assets are bought, sold, or traded as financial instruments, such as currencies, loans, bonds, shares, stocks, options, futures, etc. Assets can also be banked, invested, and insured to maximize value and minimize loss. In practice, risks are always present in any financial action and entities. A broad range of subfields within finance exist due to its wide scope. Asset, money, risk and investment management aim to maximize value and minimize volatility. Financial analysis is viability, stability, and profitability assessment ...
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Stable Distributions
In probability theory, a distribution is said to be stable if a linear combination of two independent random variables with this distribution has the same distribution, up to location and scale parameters. A random variable is said to be stable if its distribution is stable. The stable distribution family is also sometimes referred to as the Lévy alpha-stable distribution, after Paul Lévy, the first mathematician to have studied it.B. Mandelbrot, The Pareto–Lévy Law and the Distribution of Income, International Economic Review 1960 https://www.jstor.org/stable/2525289 Of the four parameters defining the family, most attention has been focused on the stability parameter, \alpha (see panel). Stable distributions have 0 < \alpha \leq 2, with the upper bound corresponding to the , and \alpha=1 to the Cau ...
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Cauchy Distribution
The Cauchy distribution, named after Augustin Cauchy, is a continuous probability distribution. It is also known, especially among physicists, as the Lorentz distribution (after Hendrik Lorentz), Cauchy–Lorentz distribution, Lorentz(ian) function, or Breit–Wigner distribution. The Cauchy distribution f(x; x_0,\gamma) is the distribution of the -intercept of a ray issuing from (x_0,\gamma) with a uniformly distributed angle. It is also the distribution of the ratio of two independent normally distributed random variables with mean zero. The Cauchy distribution is often used in statistics as the canonical example of a "pathological" distribution since both its expected value and its variance are undefined (but see below). The Cauchy distribution does not have finite moments of order greater than or equal to one; only fractional absolute moments exist., Chapter 16. The Cauchy distribution has no moment generating function. In mathematics, it is closely related to the P ...
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Logarithmic Growth
In mathematics, logarithmic growth describes a phenomenon whose size or cost can be described as a logarithm function of some input. e.g. ''y'' = ''C'' log (''x''). Note that any logarithm base can be used, since one can be converted to another by multiplying by a fixed constant.. Logarithmic growth is the inverse of exponential growth and is very slow. A familiar example of logarithmic growth is a number, ''N'', in positional notation, which grows as log''b'' (''N''), where ''b'' is the base of the number system used, e.g. 10 for decimal arithmetic. In more advanced mathematics, the partial sums of the harmonic series :1+\frac+\frac+\frac+\frac+\cdots grow logarithmically. In the design of computer algorithms, logarithmic growth, and related variants, such as log-linear, or linearithmic, growth are very desirable indications of efficiency, and occur in the time complexity analysis of algorithms such as binary search. Logarithmic growth can lead to apparent pa ...
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Log-Cauchy Distribution
In probability theory, a log-Cauchy distribution is a probability distribution of a random variable whose logarithm is distributed in accordance with a Cauchy distribution. If ''X'' is a random variable with a Cauchy distribution, then ''Y'' = exponential function, exp(''X'') has a log-Cauchy distribution; likewise, if ''Y'' has a log-Cauchy distribution, then ''X'' = log(''Y'') has a Cauchy distribution. Characterization The log-Cauchy distribution is a special case of the log-t distribution where the degrees of freedom parameter is equal to 1. Probability density function The log-Cauchy distribution has the probability density function: :\begin f(x; \mu,\sigma) & = \frac, \ \ x>0 \\ & = \left[ \right], \ \ x>0 \end where \mu is a real number and \sigma >0. If \sigma is known, the scale parameter is e^. \mu and \sigma correspond to the location parameter and scale parameter of the associated Cauchy distribution. Some authors define \mu and \sigma as the locat ...
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Fréchet Distribution
The Fréchet distribution, also known as inverse Weibull distribution, is a special case of the generalized extreme value distribution. It has the cumulative distribution function :\Pr(X \le x)=e^ \text x>0. where ''α'' > 0 is a shape parameter. It can be generalised to include a location parameter ''m'' (the minimum) and a scale parameter ''s'' > 0 with the cumulative distribution function :\Pr(X \le x)=e^ \text x>m. Named for Maurice Fréchet who wrote a related paper in 1927, further work was done by Fisher–Tippett distribution, Fisher and Tippett in 1928 and by Emil Julius Gumbel, Gumbel in 1958. Characteristics The single parameter Fréchet with parameter \alpha has standardized moment :\mu_k=\int_0^\infty x^k f(x)dx=\int_0^\infty t^e^ \, dt, (with t=x^) defined only for k1 the Expected value, expectation is E[X]=\Gamma(1-\tfrac) * For \alpha>2 the variance is \text(X)=\Gamma(1-\tfrac)-\big(\Gamma(1-\tfrac)\big)^2. The quantile q_y of order y ...
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Log-logistic Distribution
In probability and statistics, the log-logistic distribution (known as the Fisk distribution in economics) is a continuous probability distribution for a non-negative random variable. It is used in survival analysis as a parametric model for events whose rate increases initially and decreases later, as, for example, mortality rate from cancer following diagnosis or treatment. It has also been used in hydrology to model stream flow and precipitation, in economics as a simple model of the distribution of wealth or income, and in networking to model the transmission times of data considering both the network and the software. The log-logistic distribution is the probability distribution of a random variable whose logarithm has a logistic distribution. It is similar in shape to the log-normal distribution but has heavier tails. Unlike the log-normal, its cumulative distribution function can be written in closed form. Characterization There are several different parameterizations of ...
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Burr Distribution
In probability theory, statistics and econometrics, the Burr Type XII distribution or simply the Burr distribution is a continuous probability distribution for a non-negative random variable. It is also known as the Singh–Maddala distribution and is one of a number of different distributions sometimes called the "generalized log-logistic distribution". It is most commonly used to model household income, see for example: Household income in the U.S. and compare to magenta graph at right. The Burr (Type XII) distribution has probability density function: : \begin f(x;c,k) & = ck\frac \\ ptf(x;c,k,\lambda) & = \frac \left( \frac \right)^ \left + \left(\frac\right)^c\right \end and cumulative distribution function: :F(x;c,k) = 1-\left(1+x^c\right)^ :F(x;c,k,\lambda) = 1 - \left + \left(\frac\right)^c \right Related distributions * When ''c'' = 1, the Burr distribution becomes the Pareto Type II (Lomax) distribution. * When ''k'' = 1, the Burr distr ...
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