The Cornish-Fisher-Expansion in the context of Delta - Gamma - Normal approximations

Stefan R. Jaschke

No 2001,54, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes

Abstract: Qualitative and quantitative properties of the Cornish-Fisher-Expansion in the context of Delta-Gamma-Normal approaches to the computation of Value at Risk are presented. Some qualitative deficiencies of the Cornish-Fisher-Expansion - the monotonicity of the distribution function as well as convergence are not guaranteed - make it seem unattractive. In many practical situations, however, its actual accuracy is more than sufficient and the Cornish-Fisher-approximation can be computed faster (and simpler) than other methods like numerical Fourier inversion. This paper tries to provide a balanced view on when and when not to use Cornish-Fisher in this context.

Keywords: Value at Risk; Delta-Gamma-Normal; Cornish-Fisher expansion; Edgeworth series; Gram-Charlier series (search for similar items in EconPapers)
JEL-codes: C10 (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb373:200154

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