Calibration of Multivariate Generalized Hyperbolic Distributions : Applications in Risk Management, Portfolio optimization, and Portfolio Credit Risk

ISBN-13: 9783639123609 / Angielski / Miękka / 2009 / 116 str.

Wenbo Hu

Opis

The distributions of many financial quantities arewell-known to have heavy tails, exhibit skewness. We study an especially promising family: multivariate generalized hyperbolic distributions(GH). This family includes Gaussian and Student t distributions, and the so-called skewed t distributions. We describe a way to stably calibrate GH distributions for a wider range ofparameters than has previously been reported. We apply GH distributions in three financialapplications. First, we forecast the VaR for stockindex returns, and show that the GH distributionsoutperform the Gaussian distribution. Second, wecalculate an efficient frontier for equity portfoliooptimization under the skewed-t distribution and weshow that the Gaussian efficient frontier is actuallyunreachable. Third, we build an intensity-based modelto price Basket Credit Default Swaps by calibratingthe skewed t distribution directly, without the needto separately calibrate the skewed t copula.This book is useful to academic research of GHdistributions for both theory and calibration. It isalso useful to quantitative finance analysts andnumeric algorithm developers.

O autorze

Wenbo Hu is a director of quantitative trading at Bell Trading in
Chicago. Dr. Hu obtained a master of financial mathematics from
Peking University in 2001 and a PhD in Financial Mathematics from
Florida State University in 2005. Since then, he has been working
for Bell Trading to develop futures and options black box trading
system.