A New Method to Choose the Threshold in the Pot Model
7 Pages Posted: 22 May 2007
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: Suggested Citation