Generalized Pareto Distribution

The Generalized Pareto Distribution (GPD) is a statistical model used to describe the behavior of extreme values or rare events, such as very high income, heavy rainfall, or financial losses. It helps estimate the likelihood and size of these rare occurrences beyond normal ranges. The GPD is flexible, capturing different types of tail behaviors through its parameters, making it useful in risk assessment and decision-making for events that are infrequent but impactful. Essentially, it provides a way to understand and predict the probability of extreme events that lie outside typical observations.