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Sensitivity analysis of Mixed Tempered Stable parameters with implications in portfolio optimization

Author

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  • Asmerilda Hitaj

    (University of Milano-Bicocca)

  • Lorenzo Mercuri

    (University of Milan
    Japan Science and Technology Agency CREST)

  • Edit Rroji

    (University of Milano-Bicocca)

Abstract

This paper investigates the use, in practical financial problems, of the Mixed Tempered Stable distribution both in its univariate and multivariate formulation. In the univariate context, we study the dependence of a given coherent risk measure on the distribution parameters. The latter allows to identify the parameters that seem to have a greater influence on the given measure of risk. The multivariate Mixed Tempered Stable distribution enters in a portfolio optimization problem built considering a real market dataset of seventeen hedge fund indexes. We combine the flexibility of the multivariate Mixed Tempered Stable distribution, in capturing different tail behaviors, with the ability of the ARMA-GARCH model in capturing the time dependence observed in the data.

Suggested Citation

  • Asmerilda Hitaj & Lorenzo Mercuri & Edit Rroji, 2019. "Sensitivity analysis of Mixed Tempered Stable parameters with implications in portfolio optimization," Computational Management Science, Springer, vol. 16(1), pages 71-95, February.
    • Handle: RePEc:spr:comgts:v:16:y:2019:i:1:d:10.1007_s10287-018-0306-0
    DOI: 10.1007/s10287-018-0306-0
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    References listed on IDEAS

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    Cited by:

    1. Young Shin Kim, 2022. "Portfolio optimization and marginal contribution to risk on multivariate normal tempered stable model," Annals of Operations Research, Springer, vol. 312(2), pages 853-881, May.
    2. Michele Leonardo Bianchi & Asmerilda Hitaj & Gian Luca Tassinari, 2020. "Multivariate non-Gaussian models for financial applications," Papers 2005.06390, arXiv.org.

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