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Some new bivariate IG and NIG-distributions for modelling covariate nancial returns

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  • Lillestøl, Jostein

    ()
    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

Abstract

The univariate Normal Inverse Gaussian (NIG) distribution is found useful for modelling financial return data exhibiting skewness and fat tails. Multivariate versions exists, but may be impractical to implement in finance. This work explores some possibilities with links to the mixing representation of the NIG distribution by the IG-distribution. We present two approaches for constructing bivariate NIG distribution that take advantage of the correlation between the univariate latent IG-variables that characterizes the marginal NIG-distribution. These are readily available from the marginal estimation, either by maximum likelihood via the EM-algorithm or by Bayesian estimation via Markov chain Monte Carlo methods. A context for implementation in finance is given.

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Bibliographic Info

Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2007/1.

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Length: 29 pages
Date of creation: 08 Jan 2007
Date of revision:
Handle: RePEc:hhs:nhhfms:2007_001

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Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspx
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Related research

Keywords: Financial returns; bivariate distribution; NIG distribution; mixture representation; inverse Gaussian distribution; bivariate simulation;

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  1. Anders Eriksson & Lars Forsberg & Eric Ghysels, 2004. "Approximating the Probability Distribution of Functions of Random Variables: A New Approach," CIRANO Working Papers 2004s-21, CIRANO.
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