 Semi-parametric modelling in finance: theoretical foundationsN. H. Bingham and Rudiger Kiesel Quantitative Finance, 2002, vol. 2, issue 4, 241-250 Abstract: The benchmark theory of mathematical finance is the Black-Scholes-Merton theory, based on Brownian motion as the driving noise process for asset prices. Here the distributions of returns of the assets in a portfolio are multivariate normal. The two most obvious limitations here concern symmetry and thin tails, neither being consistent with real data. The most common replacements for the multinormal are parametric—stable, generalized hyperbolic, variance gamma. In this paper we advocate the use of semi-parametric models for distributions, where the mean vector μ and covariance Σ are parametric components and the so-called density generator (function) g is the non-parametric component. We work mainly within the family of elliptically contoured distributions, focusing particularly on normal variance mixtures with self-decomposable mixing distributions. We show how the parametric cases can be treated in a unified, systematic way within the non-parametric framework and obtain the density generators for the most important cases. Date: 2002 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:quantf:v:2:y:2002:i:4:p:241-250 Ordering information: This journal article can be ordered from DOI: 10.1088/1469-7688/2/4/201 Access Statistics for this article Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral More articles in Quantitative Finance from Taylor & Francis Journals |
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