Pattern Search for Generalized Hyperbolic Distribution and Financial Risk Measure

Abstract:

A new parameter estimation--- pattern search algorithm based on maximum likelihood estimation is used to estimate the parameters of generalized hyperbolic distribution, normal inverse Gaussian distribution and hyperbolic distribution, which are used to fit the log-return of Shanghai composite index. The goodness of fit is tested based on Anderson & Darling distance and FOF distance who pay more attention to tail distances of some distribution. Monte Carlo simulation are used to determin the critical values of Anderson & Darling distance and FOF distance of different distributions.Value at risk (VaR) and conditional value at risk (CVaR) are estimated for the fitted generalized hyperbolic distribution, normal inverse Gaussian distribution and hyperbolic distributio.The results show that generalized hyperbolic distribution family is more suitable for risk measure such as VaR and CVaR than normal distribution.

• Periodical: Applied Mechanics and Materials (Volumes 155-156)
• Pages: 424-429
• DOI: https://doi.org/10.4028/www.scientific.net/AMM.155-156.424
• Online since: February 2012
• Authors: Xiu Fang Chen, Gao Bo Chen
• Keywords: Generalized Hyperbolic Distribution, Monte Carlo, Pattern Search, Risk Measure

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