Using a bootstrap method to choose the sample fraction in tail index estimation

Tail index estimation depends for its accuracy on a precise choice of the sample fraction, i.e., the number of extreme older statistics on which the estimation is based. A complete solution to the sample fraction selection is given by means of a two-step subsample bootstrap method. This method adaptively determines the sample fraction that minimizes the asymptotic mean-squared error. Unlike previous methods, prior knowledge of the second-older parameter is not required. In addition, we are able to dispense with the need for a prior estimate of the tail index which already converges roughly at the optimal rate. The only arbitrary choice of parameters is the number of Monte Carlo replications. (C) 2001 Academic Press.