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Approximation of Asymmetric Multivariate Return Distributions

  • Ba Chu

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    We develop a new method to approximate the asymmetric multivariate probability density function (pdf) of financial asset returns by using series expansions; a rate of convergence for the mean absolute error of this approximation is also provided. We then propose the method of maximum likelihood and the generalized method of moments to estimate the parameters of the approximated pdf. A Monte-Carlo experiment corroborates the feasibility of our approach. Copyright Springer Science+Business Media, LLC. 2012

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    File URL: http://hdl.handle.net/10.1007/s10690-011-9150-8
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    Article provided by Springer in its journal Asia-Pacific Financial Markets.

    Volume (Year): 19 (2012)
    Issue (Month): 3 (September)
    Pages: 293-318

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    Handle: RePEc:kap:apfinm:v:19:y:2012:i:3:p:293-318
    Contact details of provider: Web page: http://springerlink.metapress.com/link.asp?id=102851

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    1. Y. Malevergne & D. Sornette, 2002. "Multi-Moments Method for Portfolio Management: Generalized Capital Asset Pricing Model in Homogeneous and Heterogeneous markets," Papers cond-mat/0207475, arXiv.org.
    2. Knight, J.L. & Stachell, S.E. & Tran, K.C., 1995. "Statistical Modeling of Asymetric Risk in Asset Returns," Papers 95-3, Saskatchewan - Department of Economics.
    3. Chu, Ba, 2011. "Recovering copulas from limited information and an application to asset allocation," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1824-1842, July.
    4. Sargan, J D, 1976. "Econometric Estimators and the Edgeworth Approximation," Econometrica, Econometric Society, vol. 44(3), pages 421-48, May.
    5. Okimoto, Tatsuyoshi, 2008. "New Evidence of Asymmetric Dependence Structures in International Equity Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(03), pages 787-815, September.
    6. Andrew J. Patton, 2002. "On the out-of-sample importance of skewness and asymetric dependence for asset allocation," LSE Research Online Documents on Economics 24951, London School of Economics and Political Science, LSE Library.
    7. R. Cont, 2001. "Empirical properties of asset returns: stylized facts and statistical issues," Quantitative Finance, Taylor & Francis Journals, vol. 1(2), pages 223-236.
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