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When fitting a distribution in excess of a threshold as part of the body-tail distribution method described by the equation below, how is the parameter 'p' calculated. Here, F(x) is the severity distribution. F(Tail) and F(Body) are the parametric distributions selected for the tail and the body, and T is the threshold in excess of which the tail is considered to begin.
Correct Answer: D
Explanation p = k/N. If there are N observations of which K are upto T, then p = k/N allows us to have a continuous unbroken curve which gets increasingly weighted towards the distribution selected for the tail as we move towards the 'right', ie the higher values of losses. The other choices are incorrect and mostly nonsensical.