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Exceedance Probability

Trading Term

Exceedance probability is the chance that a variable will be at or above a stated threshold within a defined period. It is the complement of the cumulative distribution function, so a 20% exceedance probability for a loss level means an 80% chance that losses stay below it. The concept appears in catastrophe modeling as the exceedance probability curve used to price reinsurance layers, and in event contract markets as the direct interpretation of a price on a threshold contract.

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