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Statistical modelling of asymmetric risk in asset returns

Listed author(s):
  • J. L. Knight
  • S. E. Satchell
  • K. C. Tran

The purpose of this article is to provide a straightforward model for asset returns which captures the fundamental asymmetry in upward versus downward returns. We model this feature by using scale gamma distributions for the conditional distributions of positive and negative returns. By allowing the parameters for positive returns to differ from parameters for negative returns we can test the hypothesis of symmetry. Some applications of this process to expected utility and semi-variance calculations are considered. Finally we estimate the model using daily UK FT100 index and Futures data.

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Article provided by Taylor & Francis Journals in its journal Applied Mathematical Finance.

Volume (Year): 2 (1995)
Issue (Month): 3 ()
Pages: 155-172

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Handle: RePEc:taf:apmtfi:v:2:y:1995:i:3:p:155-172
DOI: 10.1080/13504869500000009
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