Dimension-wise scaled normal mixtures with application to finance and biometry

Antonio Punzo and Luca Bagnato

Journal of Multivariate Analysis, 2022, vol. 191, issue C

Abstract: We propose the family of dimension-wise scaled normal mixtures (DSNMs) to model the joint distribution of a d-variate random variable with real-valued components. Each member of the family generalizes the multivariate normal (MN) distribution in two directions. Firstly, the DSNM has a more general type of symmetry with respect to the elliptical symmetry of the MN distribution. Secondly, the univariate marginals have similar heavy-tailed normal scale mixture distributions with (possibly) different tailedness parameters; as a consequence of practical interest, the DSNM allows for a different excess kurtosis on each dimension. These peculiarities are obtained in an MN scale mixture framework by introducing a d-variate mixing random variable with independent and similar components acting separately for each dimension. We examine several properties of DSNMs, such as the joint density function, hierarchical and stochastic representations, relations with other families of symmetric distributions, type of symmetry, marginal and conditional distributions, no correlation implying independence, moment generating function, and moments of practical interest. For illustrative purposes, we describe two members of the DSNM family obtained in the case of components of the mixing random vector being either uniform or shifted exponential; these are examples of mixing distributions that guarantee a closed-form expression for the joint density of the DSNM. For the two DSNMs analyzed in detail, we introduce parsimony by allowing the d tailedness parameters to be tied across dimensions, and describe algorithms, based on the expectation–maximization (EM) principle, to estimate the parameters by maximum likelihood. We use real data from the financial and biometrical fields to appreciate the advantages of our DSNMs over other symmetric heavy-tailed distributions available in the literature.

Keywords: EM algorithm; Heavy-tailed distributions; Multiple scaled distributions; Scale mixtures (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1016/j.jmva.2022.105020

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