Large and Moderate Deviations for Conservative Tail-Index Estimation

Source abstract

To design systems that are protected against events much rarer than the observational record, extreme-value methods are needed to extrapolate distribution tails. Tail-index estimators such as the Hill estimator are central to this extrapolation, but overestimating the tail exponent can lead to substantial underestimation of rare-event probabilities. Motivated by this, we derive large- and moderate-deviation asymptotics for the Hill estimator and use them to construct estimators whose probability of exceeding the true tail index decays at a controlled exponential rate (the decay rate). In the large-deviations regime, we show that a simple rescaled version of the Hill estimator achieves an optimal balance between bias and decay rate among scale-invariant estimators based on the same top $k$ order statistics. Under a second-order condition, we quantify the effect of the Hill bias, analyze a bias-corrected estimator, and identify sufficient conditions for moderate deviations in the boundary case where the second-order parameter $ρ$ equals zero.