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Stable Mixture GARCH Models

Stable mixture GARCH models
Authors: Broda, Simon A; Haas, Markus; Krause, Jochen; Paolella, Marc S; Steude, Sven C;

Stable Mixture GARCH Models

Abstract

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.

Countries
Switzerland, Netherlands
Keywords

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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    popularity
    This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
    Top 10%
    influence
    This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
    Top 10%
    impulse
    This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
41
Top 10%
Top 10%
Top 10%
Green
bronze