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Numerical Methods for Stable Modeling in Financial Risk Management

In: Handbook of Computational and Numerical Methods in Finance

Author

Listed:
  • Stoyan Stoyanov

    (Sofia University, Bulgaria, Faculty of Economics and Business)

  • Borjana Racheva-Jotova

    (Sofia University, Bulgaria, Faculty of Economics and Business)

Abstract

The seminal work of Mandelbrot and Fama, carried out in the 1960s, suggested the class of α-stable laws as a probabilistic model of financial assets returns. Stable distributions possess several properties which make plausible their application in the field of finance — heavy tails, excess kurtosis, domains of attraction. Unfortunately working with stable laws is very much obstructed by the lack of closed-form expressions for probability density functions and cumulative distribution functions. In the current paper we review statistical and numerical techniques which make feasible the application of stable laws in practice.

Suggested Citation

  • Stoyan Stoyanov & Borjana Racheva-Jotova, 2004. "Numerical Methods for Stable Modeling in Financial Risk Management," Springer Books, in: Svetlozar T. Rachev (ed.), Handbook of Computational and Numerical Methods in Finance, chapter 8, pages 299-329, Springer.
    • Handle: RePEc:spr:sprchp:978-0-8176-8180-7_8
    DOI: 10.1007/978-0-8176-8180-7_8
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