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A new methodological approach for error distributions selection
Hambuckers, julien; Heuchenne, Cédric
20137th International Conference on Computational and Financial Econometrics and 6th International Conference of the ERCIM WG on Computational and Methodological Statistics
 

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Keywords :
error distribution; variance misspecification; nonparametric; goodness-of-fit; selection test
Abstract :
[en] Since 2008 and its financial crisis, an increasing attention has been devoted to the selection of an adequate error distribution in risk models, in particular for Value-at-Risk (VaR) predictions. We propose a robust methodology to select the most appropriate error distribution candidate, in a classical multiplicative heteroscedastic model. In a first step, unlike to the traditional approach, we do not use any GARCH-type estimation of the conditional variance. Instead, we propose to use a recently developed nonparametric procedure: the Local Adaptive Volatility Estimation (LAVE). The motivation for using this method is to avoid a possible model misspecification for the conditional variance. In a second step, we suggest a set of estimation and model selection procedures tests based on the so-obtained residuals. These methods enable to assess the global fit of a given distribution as well as to focus on its behaviour in the tails. Finally, we illustrate our methodology on three time series (UBS stock returns, BOVESPA returns and EUR/USD exchange rates).
Research center :
QuantOM
Disciplines :
Quantitative methods in economics & management
Author, co-author :
Hambuckers, julien ;  Université de Liège - ULiège > HEC-Ecole de gestion : UER > Statistique appliquée à la gestion et à l'économie
Heuchenne, Cédric ;  Université de Liège - ULiège > HEC-Ecole de gestion : UER > Statistique appliquée à la gestion et à l'économie
Language :
English
Title :
A new methodological approach for error distributions selection
Publication date :
15 December 2013
Event name :
7th International Conference on Computational and Financial Econometrics and 6th International Conference of the ERCIM WG on Computational and Methodological Statistics
Event organizer :
Computational Statistics and Data Analysis journal, London School of Economics, University of London
Event place :
London, United Kingdom
Event date :
du 14 décembre 2013 au 16 décembre 2013
Audience :
International
References of the abstract :
http://www.cmstatistics.org/ERCIM2013/docs/BoA.pdf
Funders :
F.R.S.-FNRS - Fonds de la Recherche Scientifique [BE]
PRISME - Pôle de Recherche Interdisciplinaire en Sciences du Management et de l'Économie [BE]
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since 18 December 2013

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