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Regression Modeling with Actuarial and Financial Applications by Edward W. Frees

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17

Fat-Tailed Regression Models

Chapter Preview. When modeling financial quantities, we are just as interested in the extreme values as in the center of the distribution; extreme values can represent the most unusual claims, profits, or sales. Actuaries often encounter situations where the data exhibit fat tails, or cases in which extreme values in the data are more likely to occur than in normally distributed data. Traditional regression focuses on the center of the distribution and downplays extreme values. In contrast, the focus of this chapter is on the entire distribution. This chapter surveys four techniques for regression analysis of fat-tailed ...

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