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The Method of Simulated Quantiles

31 Pages Posted: 28 Feb 2010 Last revised: 1 Jul 2010

Yves Dominicy

Université libre de Bruxelles - Solvay Brussels School of Economics and Management - ECARES

David Veredas

Vlerick Business School

Date Written: May 19, 2010

Abstract

We introduce an inference method based on quantiles matching, which is useful for situations where the density function does not have a closed form - but it is simple to simulate - and/or moments do not exist. Functions of theoretical quantiles, which depend on the parameters of the assumed probability law, are matched with sample quantiles, which depend on observations. Since the theoretical quantiles may not be available analytically, the optimization is based on simulations. We illustrate the method with the estimation of alpha-stable distributions. A thorough Monte Carlo study and an illustration to 22 financial indexes show the usefulness of the method.

Keywords: Quantiles, simulated methods, alpha-stable distribution, fat tails

JEL Classification: C32, G14, E44

Suggested Citation

Dominicy, Yves and Veredas, David, The Method of Simulated Quantiles (May 19, 2010). Available at SSRN: https://ssrn.com/abstract=1561185 or http://dx.doi.org/10.2139/ssrn.1561185

Yves Dominicy

Université libre de Bruxelles - Solvay Brussels School of Economics and Management - ECARES ( email )

50 Av Franklin Roosevelt CP 114/04
1050
Brussels
Belgium

David Veredas (Contact Author)

Vlerick Business School ( email )

Library
REEP 1
Gent, BE-9000
Belgium

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