# Heavy-tailed distribution

In probability theory, heavy-tailed distributions are probability distributions whose tails are not exponentially bounded: that is, they have heavier tails than the exponential distribution. In many applications it is the right tail of the distribution that is of interest, but a distribution may have a heavy left tail, or both tails may be heavy.

There are three important subclasses of heavy-tailed distributions, the fat-tailed distributions, the long-tailed distributions and the subexponential distributions. In practice, all commonly used heavy-tailed distributions belong to the subexponential class.

There is still some discrepancy over the use of the term heavy-tailed. There are two other definitions in use. Some authors use the term to refer to those distributions which do not have all their power moments finite; and some others to those distributions that do not have a finite variance. The definition given in this article is the most general in use, and includes all distributions encompassed by the alternative definitions, as well as those distributions such as log-normal that possess all their power moments, yet which are generally acknowledged to be heavy-tailed. (Occasionally, heavy-tailed is used for any distribution that has heavier tails than the normal distribution.)

## Definitions

### Definition of heavy-tailed distribution

The distribution of a random variable X with distribution function F is said to have a heavy right tail if

$\lim _{x\to \infty }e^{\lambda x}\Pr[X>x]=\infty \quad {\mbox{for all }}\lambda >0.\,$ This is also written in terms of the tail distribution function

${\overline {F}}(x)\equiv \Pr[X>x]\,$ as

$\lim _{x\to \infty }e^{\lambda x}{\overline {F}}(x)=\infty \quad {\mbox{for all }}\lambda >0.\,$ This is equivalent to the statement that the moment generating function of F, MF(t), is infinite for all t > 0.

The definitions of heavy-tailed for left-tailed or two tailed distributions are similar.

### Definition of long-tailed distribution

The distribution of a random variable X with distribution function F is said to have a long right tail if for all t > 0,

$\lim _{x\to \infty }\Pr[X>x+t|X>x]=1,\,$ or equivalently

${\overline {F}}(x+t)\sim {\overline {F}}(x)\quad {\mbox{as }}x\to \infty .\,$ This has the intuitive interpretation for a right-tailed long-tailed distributed quantity that if the long-tailed quantity exceeds some high level, the probability approaches 1 that it will exceed any other higher level: if you know the situation is good, it is probably better than you think.

All long-tailed distributions are heavy-tailed, but the converse is false, and it is possible to construct heavy-tailed distributions that are not long-tailed.

### Subexponential distributions

$\Pr[X_{1}+X_{2}\leq x]=F^{*2}(x)=\int _{-\infty }^{\infty }F(x-y)\,dF(y).$ A distribution $F$ on the positive half-line is subexponential  if

${\overline {F^{*2}}}(x)\sim 2{\overline {F}}(x)\quad {\mbox{as }}x\to \infty .$ ${\overline {F^{*n}}}(x)\sim n{\overline {F}}(x)\quad {\mbox{as }}x\to \infty .$ $\Pr[X_{1}+\cdots +X_{n}>x]\sim \Pr[\max(X_{1},\ldots ,X_{n})>x]\quad {\text{as }}x\to \infty .$ This is often known as the principle of the single big jump or catastrophe principle.

A distribution $F$ on the whole real line is subexponential if the distribution $FI([0,\infty ))$ is. Here $I([0,\infty ))$ is the indicator function of the positive half-line. Alternatively, a random variable $X$ supported on the real line is subexponential if and only if $X^{+}=\max(0,X)$ is subexponential.

All subexponential distributions are long-tailed, but examples can be constructed of long-tailed distributions that are not subexponential.

## Common heavy-tailed distributions

All commonly used heavy-tailed distributions are subexponential.

Those that are one-tailed include:

Those that are two-tailed include:

## Relationship to fat-tailed distributions

A fat-tailed distribution is a distribution for which the probability density function, for large x, goes to zero as a power $x^{-a}$ . Since such a power is always bounded below by the probability density function of an exponential distribution, fat-tailed distributions are always heavy-tailed. Some distributions however have a tail which goes to zero slower than an exponential function (meaning they are heavy-tailed), but faster than a power (meaning they are not fat-tailed). An example is the log-normal distribution. Many other heavy-tailed distributions such as the log-logistic and Pareto distribution are however also fat-tailed.

## Estimating the tail-index

To estimate the tail-index, some authors use the GEV distribution or Pareto distribution parameters on data using the maximum-likelihood estimation (MLE).

### Pickands tail-index

$\xi _{(k(n),n)}^{Pickands}={\frac {1}{\ln 2}}\ln \left({\frac {X_{(n-k(n)+1,n)}-X_{(n-2k(n)+1,n)}}{X_{(n-2k(n)+1,n)}-X_{(n-4k(n)+1,n)}}}\right)$ ### Hill tail-index

$\xi _{(k(n),n)}^{Hill}={\frac {1}{k(n)}}\sum _{i=n-k(n)+1}^{n}\ln(X_{(i,n)})-\ln(X_{(n-k(n)+1,n)})$ ### Software

• aest, C tool for estimating the heavy tail index