Modelling tail risk with tempered stable distributions: an overview

Hasan Fallahgoul () and Gregoire Loeper ()
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Hasan Fallahgoul: Monash University
Gregoire Loeper: Monash University

Annals of Operations Research, 2021, vol. 299, issue 1, No 50, 1253-1280

Abstract: Abstract In this study, we investigate the performance of different parametric models with stable and tempered stable distributions for capturing the tail behaviour of log-returns (financial asset returns). First, we define and discuss the properties of stable and tempered stable random variables. We then show how to estimate their parameters and simulate them based on their characteristic functions. Finally, as an illustration, we conduct an empirical analysis to explore the performance of different models representing the distributions of log-returns for the S&P500 and DAX indexes.

Keywords: Lévy process; Stable distribution; Tail risk; Tempered stable distribution (search for similar items in EconPapers)
JEL-codes: C5 G12 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s10479-019-03204-3

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