Extreme events and emergency scales

Authors

Veniamin Smirnov
Zhuanzhuan Ma, The University of Texas Rio Grande ValleyFollow
Dimitri Volchenkov

Document Type

Article

Publication Date

11-2020

Abstract

An event is extreme if its magnitude exceeds the threshold. A choice of a threshold is subject to uncertainty caused by a method, the size of available data, a hypothesis on statistics, etc. We assess the degree of uncertainty by the Shannon's entropy calculated on the probability that the threshold changes at any given time. If the amount of data is not sufficient, an observer is in the state of Lewis Carroll's Red Queen who said "When you say hill, I could show you hills, in comparison with which you'd call that a valley". If we have enough data, the uncertainty curve peaks at two values clearly separating the magnitudes of events into three emergency scales: subcritical, critical, and extreme. Our approach to defining the emergency scale is validated by 39 years of Standard and Poor's 500 (S&P500) historical data.

Comments

Original published version available at https://doi.org/10.1016/j.cnsns.2020.105350

Recommended Citation

Smirnov, Veniamin et al. “Extreme events and emergency scales.” Communications in nonlinear science & numerical simulation vol. 90 (2020): 105350. https://doi.org/10.1016/j.cnsns.2020.105350

Publication Title

Communications in nonlinear science & numerical simulation

DOI

10.1016/j.cnsns.2020.105350