Fitting Financial Returns Distributions: A Mixture Normality Approach .

Diego Zappa, Riccardo Bramante

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

Value at Risk has emerged as a useful tool to risk management. A relevant driving force has been the diffusion of JP Morgan RiskMetrics methodology and the subsequent BIS adoption for all trading portfolios of financial institutions. To improve the accuracy of VaR estimates in this paper we propose the use of mixture of truncated normal distributions in modelling returns. An optimization algorithm has been developed to obtain the best fit by using the minimum distance approach. Results show evidence to fit return distributions at a satisfactory level, completely maintaining local normality properties in the model.
Original languageEnglish
Title of host publicationMathematical and Statistical Methods for Actuarial Sciences and Finance
Pages81-88
Number of pages8
DOIs
Publication statusPublished - 2014

Keywords

  • Minimum Distance
  • Mixture of truncated distributions
  • Value at risk

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