Journal of Risk

Risk.net

Expansion methods applied to asset return distributions

Kohei Marumo, Rodney Wolff

ABSTRACT

In this paper we attempt to apply the Laguerre expansion to asset return distributions and compare its performance with that of the Hermite expansion, which is most commonly employed in studies in finance. Numerical examples using market data show that the Laguerre expansion can perform better, and can be used to calculate the value-at-risk. We also apply this method to the time aggregation problem, which is concerned with value-atrisk over a longer time horizon than one day.

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