Modelling multivariate extremes through angular-radial decomposition of the density function

TL;DR

This paper introduces the semi-parametric angular-radial (SPAR) model for multivariate extremes, transforming the problem into modeling an angular density and the tail of the radial variable, with flexible coordinate choices and margin effects.

Contribution

The paper proposes a novel SPAR framework that generalizes existing methods, incorporating flexible coordinate systems and margin choices for better modeling of multivariate extremes.

Findings

SPAR model encompasses many existing approaches as special cases.

Laplace margins facilitate the validity of SPAR assumptions across common copulas.

Choice of coordinate system influences model simplicity and validity.

Abstract

We present a new framework for modelling multivariate extremes, based on an angular-radial representation of the probability density function. Under this representation, the problem of modelling multivariate extremes is transformed to that of modelling an angular density and the tail of the radial variable, conditional on angle. Motivated by univariate theory, we assume that the tail of the conditional radial distribution converges to a generalised Pareto (GP) distribution. To simplify inference, we also assume that the angular density is continuous and finite and the GP parameter functions are continuous with angle. We refer to the resulting model as the semi-parametric angular-radial (SPAR) model for multivariate extremes. We consider the effect of the choice of polar coordinate system and introduce generalised concepts of angular-radial coordinate systems and generalised scalar angles in two dimensions. We show that under certain conditions, the choice of polar coordinate system does not affect the validity of the SPAR assumptions. However, some choices of coordinate system lead to simpler representations. In contrast, we show that the choice of margin does affect whether the model assumptions are satisfied. In particular, the use of Laplace margins results in a form of the density function for which the SPAR assumptions are satisfied for many common families of copula, with various dependence classes. We show that the SPAR model provides a more versatile framework for characterising multivariate extremes than provided by existing approaches, and that several commonly-used approaches are special cases of the SPAR model.