Some new bivariate IG and NIG-distributions for modelling covariate nancial returns
AbstractThe 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 InfoPaper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2007/1.
Length: 29 pages
Date of creation: 08 Jan 2007
Date of revision:
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Postal: NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 95 92 93
Fax: +47 55 95 96 50
Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspx
More information through EDIRC
Financial returns; bivariate distribution; NIG distribution; mixture representation; inverse Gaussian distribution; bivariate simulation;
Find related papers by JEL classification:
- C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
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- Anders Eriksson & Lars Forsberg & Eric Ghysels, 2004.
"Approximating the Probability Distribution of Functions of Random Variables: A New Approach,"
CIRANO Working Papers
- Eric Ghysels & Anders Eriksson Lars Forsberg, 2004. "Approximating the probability distribution of functions of random variables: A new approach," Econometric Society 2004 Far Eastern Meetings 503, Econometric Society.
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