Extreme Value Theory

Let X be a random variable and x1 ,K , xn to be n realizations of X. Allow yn = max [ x1 ,K , xn ] .

Given m such sets of observations, it is of interest to find the distribution function, FYn of yn :
FYn ( y) = P [ Yn �y ] = P [ X 1 �y;K ; X n �y ]

[UPDATE THE REST IF THIS…]

since the largest of the X i ’s are less than or equal to y if and only if all of the X i ’s are less
than or equal to y. If the X i ’s are independent and identically distributed:
n
P [ X 1 �y;K ; X n �y ] = �P [ X i �y ] = [ FX ( y ) ]
n

i =1
thus
FYn ( y ) = [ FX ( y )]
n

This is the exact distribution of the maximum of a sample of size n. As the parent CDF FX ( y )
is raised to the power of n, it is very important that the parent distribution is known and
closely models the data. Unfortunately in most areas this is not the case and the asymptotic
theory of extremes is used instead. This theory, initially developed by Fisher & Tippett
(1928), examines the above distribution as n tends to infinity. The stability postulate states
that many functions of distributions simply shift the original distribution along the x-axis and
modify its variance. Knowing this, Fisher & Tippett suggested that the following functional
equation is the limiting form:
[ FX ( y)] = FX (an + bn y )
n

Fisher & Tippett gave three solutions to this equation: the Type I, II and III limiting forms.
These became known as the Gumbel, Frechet and Weibull (Gumbel 1958) distributions. It
took until 1955 when Jenkinson and Von Mises independently solved the expression for a
single form which inherently incorporates all three forms; subsequent development gives this
as the generalized extreme value distribution (GEV):
-1/ x
�
� � �y - m � � � �
G ( y ) = exp �-� 1+ x � �� �
�� �s � � �
defined on the set  z : 1 + x ( z - m ) / s  0 and where the parameters satisfy -   m   , s  0
and -   x   . The model has three parameters: location, m; a scale, s; and shape, x. The
Type II and III families correspond to the cases x > 0 and x < 0 respectively. The Type I
family is the limit of G(z) as x → 0. The major benefit of using this distribution is that
through inference on x the data itself determines the correct tail model, avoiding the need to
make a subjective a priori judgement on which Fisher-Tippett extreme value family to adopt.
It is clear to see that the power of the method of asymptotic limiting forms is that the actual
form of the parent CDF FX ( y ) is not required as part of the solution of the GEV (or indeed
any of the extreme value distributions). Further, various authors (Castillo 1988, Gnedenko
1943) have elaborated this concept and have shown that the GEV can approximate the
extremes from any parent CDF. It is worthy of note, however, that the speed of convergence
with n of the parent distribution to the GEV varies: the Normal distribution is notoriously
slow, whist the Exponential distribution converges rapidly. {CHECK ON EXPONENTIAL}
{PAGES 12 TO 13 OF MY DRAFT OF STAT LOAD ASSESS. EXPLAIN THEN HOW THE
MMGEV COMES ABOUT FROM THIS – ALSO PAGES 14-16 COMPARE THE OLD
METHOD (SGEV) WITH THE MMGEV}