A New Method to Choose the Threshold in the Pot Model

7 Pages Posted: 22 May 2007

See all articles by Chunyang Zhou

Chunyang Zhou

Shanghai Jiao Tong University (SJTU)

Chongfeng Wu

Shanghai Jiao Tong University (SJTU) - Aetna School of Management

Hailong Liu

Shanghai Jiao Tong University (SJTU)

Fubing Liu

Shanghai Jiao Tong University (SJTU)

Abstract

A new method which is based on the Hill plot is proposed to determine an appropriate threshold in the POT (Peaks Over Threshold) model. Different from the traditional Hill plot method, the proposed method can determine the threshold by quantification, and is easy to be implemented by a computer program. An empirical study using the prices of copper futures contracts traded in LME is also presented. It's shown that the proposed method can well capture the turning point of the Hill plot.

Keywords: POT, Threshold selection, Hill plot

JEL Classification: G15

Suggested Citation

Zhou, Chunyang and Wu, Chongfeng and Liu, Hailong and Liu, Fubing, A New Method to Choose the Threshold in the Pot Model. Available at SSRN: https://ssrn.com/abstract=987796 or http://dx.doi.org/10.2139/ssrn.987796

Chunyang Zhou (Contact Author)

Shanghai Jiao Tong University (SJTU) ( email )

KoGuan Law School
Shanghai 200030, Shanghai 200052
China

Chongfeng Wu

Shanghai Jiao Tong University (SJTU) - Aetna School of Management ( email )

No.535 Fahuazhen Road
Shanghai, 200052
China

Hailong Liu

Shanghai Jiao Tong University (SJTU) ( email )

KoGuan Law School
Shanghai 200030, Shanghai 200052
China

Fubing Liu

Shanghai Jiao Tong University (SJTU) ( email )

KoGuan Law School
Shanghai 200030, Shanghai 200052
China

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