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Gram-Charlier densities: a multivariate approach

Author

Listed:
  • Esther B. Del Brio
  • Trino-Manuel Niguez
  • Javier Perote

Abstract

This paper introduces a new family of multivariate distributions based on Gram-Charlier and Edgeworth expansions. This family encompasses many of the univariate semi-non-parametric densities proposed in financial econometrics as marginal of its different formulations. Within this family, we focus on the analysis of the specifications that guarantee positivity to obtain well-defined multivariate semi-non-parametric densities. We compare two different multivariate distributions of the family with the multivariate Edgeworth-Sargan, Normal, Student's t and skewed Student's t in an in- and out-of-sample framework for financial returns data. Our results show that the proposed specifications provide a reasonably good performance, and would therefore be of interest for applications involving the modelling and forecasting of heavy-tailed distributions.

Suggested Citation

  • Esther B. Del Brio & Trino-Manuel Niguez & Javier Perote, 2009. "Gram-Charlier densities: a multivariate approach," Quantitative Finance, Taylor & Francis Journals, vol. 9(7), pages 855-868.
  • Handle: RePEc:taf:quantf:v:9:y:2009:i:7:p:855-868
    DOI: 10.1080/14697680902773611
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    Citations

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    Cited by:

    1. repec:eee:ecofin:v:42:y:2017:i:c:p:53-69 is not listed on IDEAS
    2. Alexandros Gabrielsen & Axel Kirchner & Zhuoshi Liu & Paolo Zagaglia, 2015. "Forecasting Value-At-Risk With Time-Varying Variance, Skewness And Kurtosis In An Exponential Weighted Moving Average Framework," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 10(01), pages 1-29.
    3. Juan Arismendi, 2014. "A Multi-Asset Option Approximation for General Stochastic Processes," ICMA Centre Discussion Papers in Finance icma-dp2014-03, Henley Business School, Reading University.
    4. Withers, Christopher S. & Nadarajah, Saralees, 2014. "The dual multivariate Charlier and Edgeworth expansions," Statistics & Probability Letters, Elsevier, vol. 87(C), pages 76-85.
    5. repec:eee:ememar:v:31:y:2017:i:c:p:96-115 is not listed on IDEAS
    6. Ñíguez, Trino-Manuel & Perote, Javier, 2016. "Multivariate moments expansion density: Application of the dynamic equicorrelation model," Journal of Banking & Finance, Elsevier, vol. 72(S), pages 216-232.
    7. Del Brio, Esther B. & Perote, Javier, 2012. "Gram–Charlier densities: Maximum likelihood versus the method of moments," Insurance: Mathematics and Economics, Elsevier, vol. 51(3), pages 531-537.
    8. Del Brio, Esther B. & Ñíguez, Trino-Manuel & Perote, Javier, 2011. "Multivariate semi-nonparametric distributions with dynamic conditional correlations," International Journal of Forecasting, Elsevier, vol. 27(2), pages 347-364.
    9. Andrés Mora-Valencia & Trino-Manuel Ñíguez & Javier Perote, 2017. "Multivariate approximations to portfolio return distribution," Computational and Mathematical Organization Theory, Springer, vol. 23(3), pages 347-361, September.

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