1 Extreme Value

See http://ccc.atmos.colostate.edu/
~
odie/rain.html. There was a very big thunder-
storm on July 28, 1997 in Fort Collins, Colorado. Five people were killed and approximately
250 million dollars worth damage took place. 6.18 inches of rain was measured for this event.
Lets analyze data preceding the event (19481990) and try to estimate the return period
associated with an event of 6.18 inches. We would like an answer to this question: What is the
probability the annual maximum rainfall is larger than 6.18 inches? (We concentrate only on
the rainfall data for the period April October.) Let X
t
be the daily summer precipitation
amount. To model the precipitation, we assume that X
t
> 0 with probability p and p = 0.218.
Further assume that X
t
|X
t
> 0 Gamma(, ). The ML estimates of the parameters are
= 0.784 and

= 3.52. Assume that the probability that this Gamma random variable is
greater than 6.18 is 1.47 10
10
. The histogram below tells you that this ts the data well.
Let us nd the probability that the annual maximum will be more than 6.18 inches. Assumes
independence of daily observations, 214 summer days in a year.
P(X
t
> 6.18) = P(X
t
> 6.18|X
t
> 0)P(X
t
> 0)
= 1.47 10
10
0.218
= 3.20 10
11
P(ann max > 6.18) = 1 P(entire years obs < 6.18)
= 1 (1 3.20 10
11
)
214
= 6.86 10
9
Return period = (6.86 10
9
)
1
= 145815245 years.
1
Does it look right? No! Let us analyze the data dierently. Let us extract the annual maxima
and t a model. Let M
n
= max
t=1,...,n
{X
t
}. Assume M
n
GEV (, , ) such that
F
M
n
(x) = P(M
n
x) = exp

1 +

1/

.
If the ML estimates of the parameters are = 1.11, = 0.46 and

= 0.31, we get F
M
n
(6.18) =
0.992. Calculate the return period.
P(ann max > 6.18) = 1 F
M
n
(6.18) = 0.008
Return period = (0.008)
1
= 125 years.
Looks lot more reasonable. Note that here we have discarded most of the data points and
even then, we get better results. Why? Phenomena which generate extreme observations are
fundamentally dierent than those which generate typical observations. If F
X
(x) is the cdf of
X
t
, then F
M
n
(x) = (F
X
(x))
n
. If we know F
X
exactly, then we know F
M
n
exactly. But if we
have to estimate F
X
, any errors get amplied by n. Here n is large. So even though the t to
the histogram above looks good, it is not enough.
In this problem we can also ask them to nd the ML estimates of the Gamma parameters,
which is straightforward.
http://en.wikipedia.org/wiki/Gamma_distribution#Maximum_likelihood_estimation
2 Love Letter
A schoolboy writes X and receives Y love letters per day. Unfortunately, these two random
variables, X and Y , are independent of each other. Fortunately they both follow Poisson
distributions with parameters
1
and
2
. On a day when the boy exchanges u or more love-
letters, he becomes so distracted that he gets zero if there is a mathematics exam on that day.
Luckily mathematics tests are not taken every day, only with probability p, a surprise test is
given on a week day. Surprisingly, nobody cares about the math exam, and hence, his mail
exchanges remain unaected by the surprise math tests. His dad knows everything, and is very
angry with his son, but because of the Kids Love Right Protection Law, decides not to interfere.
However, he has told him that within a period of N week days, if the boy gets zero in k tests,
he would disown him. Interestingly, this boy has a steady girlfriend as well, who does not have
any problem with these love letters but she loves his dads Porsche very much, and told him
that she would break up with him if he does get disowned. Calculate the probability of her
breaking up with the boy, if she keeps her word.
X Poi(
1
), Y Poi(
2
) and X and Y are independent. So X + Y Poi(
1
+
1
). Let A
be the event that the boy gets zero in one day and B be the event that a surprise test is given
2