Study on Financial Market Risk Measures Based on Skewed and Fat-tailed Distributions
Yu Wei · Journal of systems management · 2007
With empirical studies on the statistical characteristics of several important stock indices,we find that all return distributions are skewed and fat-tailed,no matter whether it is in mature capital markets or in emerging ones. So the assumptions of normal or symmetric student distributions in standard finance cannot describe the true features of return distributions and market risk conditions.This paper introduces the skewed student distribution,and compares it with other distribution assumptions in terms of volatility and VaR calculations.We also use Kupiec LR test and Dynamic quantile regression to test the accuracy and applicability of different kinds of distribution models,and discuss the financial market risk measures under non-normal distribution.