Moment Matching for the Masses

36 Pages Posted: 4 Aug 2006

See all articles by Derek R. White

Derek R. White

UNSW Australia Business School, School of Banking and Finance

John Okunev

Bond University Business School

Date Written: August 2006

Abstract

It is well known that Cholesky decomposition will compress the tails in a multivariate probability mass. With significantly skewed or highly kurtotic distributions, this tail compression can be quite severe. In this paper, a simple methodology is presented to generate multivariate systems matching the first four moments, a desired correlation structure, and any number of tail points.

Keywords: Value at Risk, Simulation, Cholesky decomposition, Risk Management

JEL Classification: C15, E47, G11, G12

Suggested Citation

White, Derek and Okunev, John, Moment Matching for the Masses (August 2006). Available at SSRN: https://ssrn.com/abstract=921451 or http://dx.doi.org/10.2139/ssrn.921451

Derek White (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia
+61 2 9385 5850 (Phone)
+61 2 9385 6347 (Fax)

John Okunev

Bond University Business School ( email )

Gold Coast
Australia

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