Analysis of the Oil Spills from Tanker Ships. Ringo Ching and T. L. Yip

Similar documents
A New Hybrid Estimation Method for the Generalized Pareto Distribution

**BEGINNING OF EXAMINATION** A random sample of five observations from a population is:

Fitting the generalized Pareto distribution to commercial fire loss severity: evidence from Taiwan

Paper Series of Risk Management in Financial Institutions

Homework Problems Stat 479

Measuring Financial Risk using Extreme Value Theory: evidence from Pakistan

Modelling Premium Risk for Solvency II: from Empirical Data to Risk Capital Evaluation

Fitting parametric distributions using R: the fitdistrplus package

[D7] PROBABILITY DISTRIBUTION OF OUTSTANDING LIABILITY FROM INDIVIDUAL PAYMENTS DATA Contributed by T S Wright

Homework Problems Stat 479

MODELLING OF INCOME AND WAGE DISTRIBUTION USING THE METHOD OF L-MOMENTS OF PARAMETER ESTIMATION

Cambridge University Press Risk Modelling in General Insurance: From Principles to Practice Roger J. Gray and Susan M.

Non-pandemic catastrophe risk modelling: Application to a loan insurance portfolio

EX-POST VERIFICATION OF PREDICTION MODELS OF WAGE DISTRIBUTIONS

MEASURING EXTREME RISKS IN THE RWANDA STOCK MARKET

Probability Weighted Moments. Andrew Smith

Certified Quantitative Financial Modeling Professional VS-1243

Modelling Environmental Extremes

Modelling Environmental Extremes

Financial Risk Forecasting Chapter 9 Extreme Value Theory

Market Risk Analysis Volume I

Generalized MLE per Martins and Stedinger

SYLLABUS OF BASIC EDUCATION SPRING 2018 Construction and Evaluation of Actuarial Models Exam 4

Stochastic model of flow duration curves for selected rivers in Bangladesh

Analysis of extreme values with random location Abstract Keywords: 1. Introduction and Model

Characterisation of the tail behaviour of financial returns: studies from India

An Introduction to Statistical Extreme Value Theory

Practice Exam 1. Loss Amount Number of Losses

Risk Analysis of Rice Losses Caused by Typhoon for Taiwan

Frequency Distribution Models 1- Probability Density Function (PDF)

Extreme Values Modelling of Nairobi Securities Exchange Index

An Application of Extreme Value Theory for Measuring Financial Risk in the Uruguayan Pension Fund 1

Quantitative Introduction ro Risk and Uncertainty in Business Module 5: Hypothesis Testing Examples

Some Characteristics of Data

GARCH Models for Inflation Volatility in Oman

Introduction to Algorithmic Trading Strategies Lecture 8

Operational Risk: Evidence, Estimates and Extreme Values from Austria

An Insight Into Heavy-Tailed Distribution

Analysis of truncated data with application to the operational risk estimation

Homework Problems Stat 479

INSTITUTE AND FACULTY OF ACTUARIES. Curriculum 2019 SPECIMEN EXAMINATION

Mixed Logit or Random Parameter Logit Model

SOCIETY OF ACTUARIES EXAM STAM SHORT-TERM ACTUARIAL MATHEMATICS EXAM STAM SAMPLE QUESTIONS

Mongolia s TOP-20 Index Risk Analysis, Pt. 3

Process capability estimation for non normal quality characteristics: A comparison of Clements, Burr and Box Cox Methods

Financial Time Series and Their Characteristics

Modelling of extreme losses in natural disasters

A UNIFIED APPROACH FOR PROBABILITY DISTRIBUTION FITTING WITH FITDISTRPLUS

EVA Tutorial #1 BLOCK MAXIMA APPROACH IN HYDROLOGIC/CLIMATE APPLICATIONS. Rick Katz

INDIAN INSTITUTE OF SCIENCE STOCHASTIC HYDROLOGY. Lecture -26 Course Instructor : Prof. P. P. MUJUMDAR Department of Civil Engg., IISc.

A NEW POINT ESTIMATOR FOR THE MEDIAN OF GAMMA DISTRIBUTION

Measures of Extreme Loss Risk An Assessment of Performance During the Global Financial Crisis

A Convenient Way of Generating Normal Random Variables Using Generalized Exponential Distribution

LDA at Work. Falko Aue Risk Analytics & Instruments 1, Risk and Capital Management, Deutsche Bank AG, Taunusanlage 12, Frankfurt, Germany

Edgeworth Binomial Trees

Modeling Co-movements and Tail Dependency in the International Stock Market via Copulae

Statistical Analysis of Data from the Stock Markets. UiO-STK4510 Autumn 2015

David R. Clark. Presented at the: 2013 Enterprise Risk Management Symposium April 22-24, 2013

STOCHASTIC MODELING OF HURRICANE DAMAGE UNDER CLIMATE CHANGE

ก ก ก ก ก ก ก. ก (Food Safety Risk Assessment Workshop) 1 : Fundamental ( ก ( NAC 2010)) 2 3 : Excel and Statistics Simulation Software\

Lecture 10: Point Estimation

International Business & Economics Research Journal January/February 2015 Volume 14, Number 1

FAV i R This paper is produced mechanically as part of FAViR. See for more information.

Financial Econometrics (FinMetrics04) Time-series Statistics Concepts Exploratory Data Analysis Testing for Normality Empirical VaR

REINSURANCE RATE-MAKING WITH PARAMETRIC AND NON-PARAMETRIC MODELS

A Comparison Between Skew-logistic and Skew-normal Distributions

Subject CS1 Actuarial Statistics 1 Core Principles. Syllabus. for the 2019 exams. 1 June 2018

2002 Statistical Research Center for Complex Systems International Statistical Workshop 19th & 20th June 2002 Seoul National University

COMPARATIVE ANALYSIS OF SOME DISTRIBUTIONS ON THE CAPITAL REQUIREMENT DATA FOR THE INSURANCE COMPANY

THRESHOLD PARAMETER OF THE EXPECTED LOSSES

INDIAN INSTITUTE OF SCIENCE STOCHASTIC HYDROLOGY. Lecture -5 Course Instructor : Prof. P. P. MUJUMDAR Department of Civil Engg., IISc.

The extreme downside risk of the S P 500 stock index

STRESS-STRENGTH RELIABILITY ESTIMATION

QUANTIFICATION OF OPERATIONAL RISKS IN BANKS: A THEORETICAL ANALYSIS WITH EMPRICAL TESTING

How To: Perform a Process Capability Analysis Using STATGRAPHICS Centurion

Hydrology 4410 Class 29. In Class Notes & Exercises Mar 27, 2013

Theoretical Distribution Fitting Of Monthly Inflation Rate In Nigeria From

Model Uncertainty in Operational Risk Modeling

NCCI s New ELF Methodology

MONTE CARLO SIMULATION AND PARETO TECHNIQUES FOR CALCULATION OF MULTI- PROJECT OUTTURN-VARIANCE

Loss Simulation Model Testing and Enhancement

Research Article Multiple-Event Catastrophe Bond Pricing Based on CIR-Copula-POT Model

ADVANCED OPERATIONAL RISK MODELLING IN BANKS AND INSURANCE COMPANIES

2.1 Random variable, density function, enumerative density function and distribution function

Two hours. To be supplied by the Examinations Office: Mathematical Formula Tables and Statistical Tables THE UNIVERSITY OF MANCHESTER

Lecture Data Science

ESTIMATING LOSS SEVERITY DISTRIBUTION: CONVOLUTION APPROACH

Modelling insured catastrophe losses

Risk Analysis for Three Precious Metals: An Application of Extreme Value Theory

Asymmetry in Indian Stock Returns An Empirical Investigation*

Institute of Actuaries of India Subject CT6 Statistical Methods

AN EXTREME VALUE APPROACH TO PRICING CREDIT RISK

Equity, Vacancy, and Time to Sale in Real Estate.

QQ PLOT Yunsi Wang, Tyler Steele, Eva Zhang Spring 2016

Value at Risk with Stable Distributions

STAT 479 Test 3 Spring 2016 May 3, 2016

Folded- and Log-Folded-t Distributions as Models for Insurance Loss Data

ANALYZING VALUE AT RISK AND EXPECTED SHORTFALL METHODS: THE USE OF PARAMETRIC, NON-PARAMETRIC, AND SEMI-PARAMETRIC MODELS

KURTOSIS OF THE LOGISTIC-EXPONENTIAL SURVIVAL DISTRIBUTION

PARAMETRIC AND NON-PARAMETRIC BOOTSTRAP: A SIMULATION STUDY FOR A LINEAR REGRESSION WITH RESIDUALS FROM A MIXTURE OF LAPLACE DISTRIBUTIONS

Transcription:

Analysis of the Oil Spills from Tanker Ships Ringo Ching and T. L. Yip

The Data Included accidents in which International Oil Pollution Compensation (IOPC) Funds were involved, up to October 2009 In this study the spill amounts in tonnes recorded in 1992 Fund and 1971 fund are combined according to cases

Background According to annual report of the IOPC fund :

Background An overall average does not fully describes the situation, especially for this compensation fund which is responsible for the major spills in excess of the liability limit of ship owners

Background Precise analysis should be done on the larger major spills If premium is too large, the cost of the business will be increased unreasonably and lower the profit If the premium was too low, the fund will go bankrupt, the risk sharing mechanism would not work Accurate estimation would lead to more reasonable premium, making the fund more efficient

Summary Statistics Year 1979-2008 Number of accidents=105, expected value = 4296.99 Maximum = 84000 Skewness= 4.43, Kurtosis= 19.46 (normal distribution has skewness = 0; kurtosis = 3) Most spills are small in amount while some spills are in another extreme

Fitting with a single distribution Weibull and lognormal distributions are fitted to the spilled amount Log-Likelihood of fitted lognormal: -785.72 Log-Likelihood of fitted Weibull: -791.17 Observed spill amount: 4282.11 tonnes Expected spill amount: 11731.70 tonnes Expected vs observed: 173.9% error Single distribution is not working well Possible solution: 2 distributions

Peaks-Over-Threshold Method A method used widely in field of hydrology and insurance Our random variable X would be the spill amount in tonnes The approximate distribution F(x) of those X larger than u, would be generalized Pareto distribution (GPD) [1]:

Peaks-Over-Threshold Method Oil spilled (tonnes) 90000 80000 70000 60000 50000 40000 30000 20000 10000 Threshold u 0 1975 1980 1985 1990 1995 2000 2005 2010 Years

Exponential Quartiles 4 3.5 3 2.5 2 1.5 1 0.5 0 0 20000 40000 60000 80000 100000 Data Quartile-plot against exponential distribution (GPD, ξ=0) The plot was obtained by matching observed data to the exponential distribution. Since it is not linear the data cannot be modeled by exponential distribution (GPD with ξ=0)

Peaks-Over-Threshold Method For GPD, if we keep on rising our threshold R larger than the suitable threshold u, the average value of those spills minus R (mean excess) would increase linearly with R with slope

Peaks-Over-Threshold Method An example would be claim data from motor insurance portfolio consists of 172,161 policies, studied by P. Gigante, L. Picech and L. Sigalotti[2] Motor insurance

Linear pattern Fitness Observed mean excess function of spill amount The linear pattern after reaching the threshold 6000 shows that the data can be modeled by GPD with threshold at around 6000

Peaks-Over-Threshold Method In other words, the major spill amount can be modeled by GPD by choosing a high enough threshold u The overall spill amount is represented by 2 distributions, with the GPD responsible for the large spill

Results Castillo and Hadi [3] compared the methods for estimating the generalized Pareto distribution. They suggested that for small sample, probability weighted moment method should be employed when there is reason to believe 0 ξ 0.5 From the linear part of empirical mean excess function, its slope is positive, such that ξ 0 and it is approximately 0.12

Results GPD has finite expectation and variance if and only if ξ is smaller than 0.5. As the amount of spill is limited by the capacity, the expectation and variance of the spill amount should be finite

Results Thresholds u (tonnes) No. of exceedances ξ σ Average (tonnes) of those spills larger than : 3900 6300 7000 8000 10000 3090 15 0.3489 16110 29076.79 32762.86 33837.96 35373.83 38445.55 3800 14 0.3197 17520 29700.34 33228.19 34257.15 35727.09 38666.97 5700 12 0.2650 20510 34421.09 35373.47 36734.01 39455.10 5900 12 0.2769 20030 34153.35 35121.41 36504.34 39270.21 6100 12 0.2888 19560 33884.03 34868.28 36274.35 39086.50 6200 11 0.1780 24575 36218.54 37070.12 38286.67 40719.76 6500 11 0.1954 23814 36717.77 37960.57 40446.19 6800 11 0.2128 23063 36350.42 37620.70 40161.25 7000 10 0.0751 29603 40087.18 42249.53 7200 10 0.0864 29057 39881.68 42070.86 7500 10 0.1034 28247 39563.69 41794.44 Observed Values 29556.79 36096.36 39006.00 42451.11 42451.11

Averages of spills larger than R (tonnes) Results 45000.00 43000.00 41000.00 39000.00 37000.00 35000.00 33000.00 31000.00 29000.00 27000.00 u=2000 u=2250 u=2500 u=3800 u=3090 u=6200 Observed Values 25000.00 3000 3900 5000 6300 7000 8000 9000 10000 R (tonnes)

Averages of spills larger than R (tonnes) 43000 Results 42000 41000 40000 39000 38000 37000 36000 u=6200 u=6500 u=7000 u=7500 Observed Values 35000 34000 5000 6300 7000 8000 9000 10000 R (tonnes)

Results Thresholds 6200 and 7000 would be compared. From the density graph of the spills less than 6300, weibull, gamma and lognormal distributions were fitted to these smaller spill amounts Thresholds (tonnes) The Log-Likelihood of the fitted distributions: Weibull Gamma Log-normal 6200-628.01-970.4774-631.2586 7000-640.7031-1043.872-643.5014

Results Hypothesis tests were conducted on the overall fitness of the mixture distributions The Kolmogorov-Smirnov (KS) Test is based on the maximum difference between the observed distribution F n (x) and estimated distribution F(x) [4]: sup x F(x)-F n (x) The Anderson-Darling (AD) Test is a modification which puts more weight on the large data:

Results Threshold (tonnes) Kolmogorov-Smirnov (KS) Test Anderson-Darling (AD) Test 6200 0.0530 0.2257 7000 0.0565 0.2317 Critical values (5% level of significance) 0.1327 2.492 The distribution with threshold 6200 have a slightly better fit to the observed spill amounts Average spill amount given by this proposed distribution is 4307.08 tonnes with 0.58% percentage error A log-normal distribution gives an estimate with 173.9% percentage error

F(x) F(x) Lognormal Implication Proposed 1.2 1.2 1 1 0.8 0.8 0.6 0.4 Observed lognormal 0.6 0.4 Observed proposed 0.2 0.2 0 0 0 50000 100000 0 50000 100000 Spill Amount (tonnes) Spill Amount (tonnes)

F(x) F(x) Implications Lognormal Proposed 1.05 1.05 1 1 0.95 0.95 0.9 0.9 0.85 0.8 Observed lognormal 0.85 0.8 Observed proposed 0.75 0.7 0 50000 100000 Where fits well 0.75 0.7 0 50000 100000 Spill Amount (tonnes) Spill Amount (tonnes)

Implications We further compare the performance of a single lognormal and the proposed distribution through hypothesis tests. The test statistics are given below Kolmogorov-Smirnov (KS) Test Anderson-Darling (AD) Test Log normal 0.0433 0.2386 Proposed 0.0530 0.2257 Critical values (5% level of significance) 0.1327 2.492 The proposed distribution performs better when placing more emphasis on the large data

Implications From the prospective of funds, the estimated average spill amount larger than a level would be put to test Average (in tonnes) of those spills larger than : 3000 3900 6300 8000 10000 Observed 26524.68 28053.00 33671.67 42451.11 42451.11 Log normal 78776.71 (197%) 89943.78 (216%) 116155.39 (245%) 132772.86 (213%) 151009.2 (256%) GPD (u=6200) 36218.54 (7.56%) 38286.67 (-9.81%) 40719.76 (-4.08%) Where the percentage errors compared with the observed values are in blankets

Implications Through separate treatment of the larger spill amounts with Peak-Over-Threshold method, a more accurate distribution for extreme oil spill data is obtained This distribution can be used by funds which are responsible for accidents exceeded the liability limit of ship owners to determine more reasonable premium, making the whole business more efficient

References [1] Pickand, J. (1975) Statistical inference using extreme order statistics Annals of Statistics, vol 3(1), pp.119-131 [2]Gigante, P. Picech, L. and Sigalotti, L. (2002) Rate making and large claims in XXXIIIrd Astin Colloquium, Match 21-22, 2002, Mexico [3] Castillo, E. and Hadi, A.S. (1997) Fitting the Generalized Pareto Distribution to Data Journal of American Statistical Association, vol 92(440), pp. 1609-1620 *4+Lai, L.H. and Wu, P.H. (2008) Estimating the threshold value and loss distribution: Rice damaged by typhoons in Taiwan African Journal of Agricultural Research, vol 3(12), pp.818-824

The Overall Distribution A mixture distribution can be used for the overall spill amount, with the GPD responsible for the larger spill amounts (X>R), the expectation would thus be given as E(X X>R) given by GPD would be

Appendix Suggested by Castillo and Hadi [2]: 1. If the sample size is large (>500) and it is believed that 0.5> ξ >-0.5, maximum likelihood estimation (MLE) method would be preferred 2. If sample size is not large and it is believed that 0.5 > ξ > 0, probability weighted moment method (PWM)should be used 3. In all other cases, used elemental percentile method (EPM) 4. In all cases, if MLE has convergence problems or if PWM gives nonsensical estimates, then use EPM

Appendix Probability weighted moment method: