A penalized least squares estimator for extreme-value mixture models

Abstract: Estimating the parameters of max-stable parametric models poses significant challenges, particularly when some parameters lie on the boundary of the parameter space. This situation arises when a subset of variables exhibits extreme values simultaneously, while the remaining variables do not -- a phenomenon referred to as an extreme direction in the literature. In this paper, we propose a novel estimator for the parameters of a general parametric mixture model, incorporating a penalization approach based on a pseudo-norm. This penalization plays a crucial role in accurately identifying parameters at the boundary of the parameter space. Additionally, our estimator comes with a data-driven algorithm to detect groups of variables corresponding to extreme directions. We assess the performance of our estimator in terms of both parameter estimation and the identification of extreme directions through extensive simulation studies. Finally, we apply our methods to data on river discharges and financial portfolio losses.