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An asymmetry-steepness parameterization of the generalized lambda distribution

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  • Chalabi, Yohan / Y.
  • Scott, David J
  • Wuertz, Diethelm
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    Abstract

    The generalized lambda distribution (GLD) is a versatile distribution that can accommodate a wide range of shapes, including fat-tailed and asymmetric distributions. It is defined by its quantile function. We introduce a more intuitive parameterization of the GLD that expresses the location and scale parameters directly as the median and inter-quartile range of the distribution. The remaining two shape parameters characterize the asymmetry and steepness of the distribution respectively. This is in contrasts to the previous parameterizations where the asymmetry and steepness are described by the combination of the two tail indices. The estimation of the GLD parameters is notoriously difficult. With our parameterization, the fitting of the GLD to empirical data can be reduced to a two-parameter estimation problem where the location and scale parameters are estimated by their robust sample estimators. This approach also works when the moments of the GLD do not exist. Moreover, the new parameterization can be used to compare data sets in a convenient asymmetry and steepness shape plot. In this paper, we derive the new formulation, as well as the conditions of the various distribution shape regions and moment conditions. We illustrate the use of the asymmetry and steepness shape plot by comparing equities from the NASDAQ-100 stock index.

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    File URL: http://mpra.ub.uni-muenchen.de/37814/
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    File URL: http://mpra.ub.uni-muenchen.de/43333/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37814.

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    Date of creation: 2012
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    Handle: RePEc:pra:mprapa:37814

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    Keywords: Quantile distributions; generalized lambda distribution; shape plot representation;

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    1. Karvanen, Juha & Nuutinen, Arto, 2008. "Characterizing the generalized lambda distribution by L-moments," Computational Statistics & Data Analysis, Elsevier, vol. 52(4), pages 1971-1983, January.
    2. Fournier, B. & Rupin, N. & Bigerelle, M. & Najjar, D. & Iost, A. & Wilcox, R., 2007. "Estimating the parameters of a generalized lambda distribution," Computational Statistics & Data Analysis, Elsevier, vol. 51(6), pages 2813-2835, March.
    3. Asquith, William H., 2007. "L-moments and TL-moments of the generalized lambda distribution," Computational Statistics & Data Analysis, Elsevier, vol. 51(9), pages 4484-4496, May.
    4. Su, Steve, 2007. "Numerical maximum log likelihood estimation for generalized lambda distributions," Computational Statistics & Data Analysis, Elsevier, vol. 51(8), pages 3983-3998, May.
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