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Distribution fitting for the rate of return and value at risk  

Hong, Chong-Sun (Department of Statistics, Sungkyunkwan University)
Kwon, Tae-Wan (Department of Statistics, Sungkyunkwan University)
Publication Information
Journal of the Korean Data and Information Science Society / v.21, no.2, 2010 , pp. 219-229 More about this Journal
Abstract
There have been many researches on the risk management due to rapid increase of various risk factors for financial assets. Aa a method for comprehensive risk management, Value at Risk (VaR) is developed. For estimation of VaR, it is important task to solve the problem of asymmetric distribution of the return rate with heavy tail. Most real distributions of the return rate have high positive kurtosis and low negative skewness. In this paper, some alternative distributions are used to be fitted to real distributions of the return rate of financial asset. And estimates of VaR obtained by using these fitting distributions are compared with those obtained from real distribution. It is found that normal mixture distribution is the most fitted where its skewness and kurtosis of practical distribution are close to real ones, and the VaR estimation using normal mixture distribution is more accurate than any others using other distributions including normal distribution.
Keywords
Kurtosis; normal mixture; rate of return; skewness;
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Times Cited By KSCI : 4  (Citation Analysis)
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