Reconstructing High Dimensional Dynamic Distributions from Distributions of Lower Dimension

29 Pages Posted: 20 Mar 2012

See all articles by Stanislav Anatolyev

Stanislav Anatolyev

New Economic School; CERGE-EI

Renat Khabibullin

Barclays Investment Bank

Artem Prokhorov

Concordia University, Quebec - Department of Economics

Date Written: March 1, 2012

Abstract

We propose a new procedure for estimating a dynamic joint distribution of a group of assets in a sequential manner starting from univariate marginals, continuing with pairwise bivariate distributions, then with triplewise trivariate distributions, etc., until the joint distribution for the whole group is constructed. The procedure uses principles and ideas from the copula theory in how at each step to arrive at a higher dimensional distribution utilizing the results from previous steps. The proposed procedure trades the dimensionality of the parameter space for numerous simpler estimations: even though there are more optimization problems to solve, each is of much lower dimension than the joint density estimation problem; in addition, the parameterization tends to be much more flexible. The paper demonstrates how to apply the new sequential technique to model a dynamic distribution of five DJIA constituents.

Keywords: multivariate distribution, univariate distribution, copula, asset returns

JEL Classification: C13

Suggested Citation

Anatolyev, Stanislav and Khabibullin, Renat and Prokhorov, Artem, Reconstructing High Dimensional Dynamic Distributions from Distributions of Lower Dimension (March 1, 2012). Available at SSRN: https://ssrn.com/abstract=2025779 or http://dx.doi.org/10.2139/ssrn.2025779

Stanislav Anatolyev (Contact Author)

New Economic School ( email )

Skolkovskoe shosse, 45
Moscow, 121353
Russia

CERGE-EI ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic

Renat Khabibullin

Barclays Investment Bank ( email )

5 The North Colonnade
London, Canary Wharf E14 4BB
United Kingdom

Artem Prokhorov

Concordia University, Quebec - Department of Economics ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB
Canada

Register to save articles to
your library

Register

Paper statistics

Downloads
44
Abstract Views
486
PlumX Metrics