Entropy densities

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Entropy densities

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ROCKINGER, Michael
JONDEAU, Eric

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Michael Rockinger

Abstract

The entropy principle yields, for a given set of moments, a density that involves the smallest amount of prior information. We first show how entropy densities may be constructed in a numerically efficient way as the minimization of a potential. Next, for the case where the first four moments are given, we characterize the skewness-kurtosis domain for which densities are defined. This domain is found to be much larger that for Hermite or Edgeworth expansions. Last, we show how this technique can be used to estimate a GARCH model where skewness and kurtosis are time varying.

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Paper provided by HEC Paris in its series Les Cahiers de Recherche with number 709.

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Length: 19 pages
Date of creation: 01 Feb 2000
Date of revision:
Handle: RePEc:ebg:heccah:0709

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Find related papers by JEL classification:
C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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Patrick Gagliardini & C. Gourieroux & E. Renault, 2005. "Efficient Derivative Pricing by Extended Method of Moments," University of St. Gallen Department of Economics working paper series 2005 2005-05, Department of Economics, University of St. Gallen. [Downloadable!]
POON, Ser-Huang & ROCKINGER, Michael & TAWN, Jonathan, 2001. "New Extreme-Value Dependance Measures and Finance Applications," Les Cahiers de Recherche 719, HEC Paris. [Downloadable!]
Other versions:
- Poon, Ser-Huang & Rockinger, Michael & Tawn, Jonathan, 2001. "New Extreme-Value Dependence Measures and Finance Applications," CEPR Discussion Papers 2762, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Rockinger, M. & Jondeau, E., 2001. "Conditional Dependency of Financial Series: An Application of Copulas," Documents de Travail 82, Banque de France. [Downloadable!]
Bertholon, H. & Monfort, A. & Pegoraro, F., 2007. "Pricing and Inference with Mixtures of Conditionally Normal Processes," Documents de Travail 188, Banque de France. [Downloadable!]
Other versions:
- Henri Bertholon ; Alain Monfort ; Fulvio Pegoraro, 2006. "Pricing and Inference with Mixtures of Conditionally Normal Processes," Working Papers 2006-28, Centre de Recherche en Economie et Statistique, revised 2006. [Downloadable!]

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