Moment Matching for the Masses
36 Pages Posted: 4 Aug 2006
Date Written: August 2006
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: Suggested Citation