
handle: 11245/1.395015
A new model class for univariate asset returns is proposed which involves the use of mixtures of stable Paretian distributions, and readily lends itself to use in a multivariate context for portfolio selection. The model nests numerous ones currently in use, and is shown to outperform all its special cases. In particular, an extensive out-of-sample risk forecasting exercise for seven major FX and equity indices confirms the superiority of the general model compared to its special cases and other competitors. Estimation issues related to problems associated with mixture models are discussed, and a new, general, method is proposed to successfully circumvent these. The model is straightforwardly extended to the multivariate setting by using an independent component analysis framework. The tractability of the relevant characteristic function then facilitates portfolio optimization using expected shortfall as the downside risk measure.
Applications of statistics to actuarial sciences and financial mathematics, GARCH, 330, 10003 Department of Finance, 2002 Economics and Econometrics, Portfolio theory, value-at-risk, ICA, Statistical methods; risk measures, Density Forecasting, Expected Shortfall, Fat Tails, ICA, GARCH, Mixtures, Portfolio Selection, Stable Paretian Distribution, Value-at-Risk, density forecasting, stable Paretian distribution, 330 Economics, Time series, auto-correlation, regression, etc. in statistics (GARCH), mixtures, fat tails, expected shortfall, portfolio selection, jel: jel:C22, jel: jel:C13, jel: jel:C32, jel: jel:C16, jel: jel:G17
Applications of statistics to actuarial sciences and financial mathematics, GARCH, 330, 10003 Department of Finance, 2002 Economics and Econometrics, Portfolio theory, value-at-risk, ICA, Statistical methods; risk measures, Density Forecasting, Expected Shortfall, Fat Tails, ICA, GARCH, Mixtures, Portfolio Selection, Stable Paretian Distribution, Value-at-Risk, density forecasting, stable Paretian distribution, 330 Economics, Time series, auto-correlation, regression, etc. in statistics (GARCH), mixtures, fat tails, expected shortfall, portfolio selection, jel: jel:C22, jel: jel:C13, jel: jel:C32, jel: jel:C16, jel: jel:G17
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