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Entropy densities

Author

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  • ROCKINGER, Michael
  • JONDEAU, Eric

Abstract

The entropy principle yields, for a given set of moments, a density that involves the smallest amount of prior information. We first show how entropy densities may be constructed in a numerically efficient way as the minimization of a potential. Next, for the case where the first four moments are given, we characterize the skewness-kurtosis domain for which densities are defined. This domain is found to be much larger that for Hermite or Edgeworth expansions. Last, we show how this technique can be used to estimate a GARCH model where skewness and kurtosis are time varying.

Suggested Citation

  • ROCKINGER, Michael & JONDEAU, Eric, 2000. "Entropy densities," HEC Research Papers Series 709, HEC Paris.
    • Handle: RePEc:ebg:heccah:0709
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    Cited by:

    1. Rockinger, Michael & Poon, Ser-Huang & Tawn, Jonathan, 2001. "New Extreme-Value Dependence Measures and Finance Applications," CEPR Discussion Papers 2762, C.E.P.R. Discussion Papers.
    2. Henri Bertholon & Alain Monfort & Fulvio Pegoraro, 2006. "Pricing and Inference with Mixtures of Conditionally Normal Processes," Working Papers 2006-28, Center for Research in Economics and Statistics.
    3. Rockinger, M. & Jondeau, E., 2001. "Conditional Dependency of Financial Series: An Application of Copulas," Working papers 82, Banque de France.
    4. Massimo Guidolin, 2011. "Markov Switching Models in Empirical Finance," Advances in Econometrics, in: Missing Data Methods: Time-Series Methods and Applications, pages 1-86, Emerald Group Publishing Limited.
    5. Cayton, Peter Julian A. & Mapa, Dennis S., 2012. "Time-varying conditional Johnson SU density in value-at-risk (VaR) methodology," MPRA Paper 36206, University Library of Munich, Germany.

    More about this item

    Keywords

    Entropy; Semi-nonparametric estimation; Time-Varying skewness and Kurtosis; Garch Model;
    All these keywords.

    JEL classification:

    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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