We implement a long-horizon static and dynamic portfolio allocation involving a risk-free and a risky asset. This model is calibrated at a quarterly frequency for ten European countries. We also use maximum-likelihood estimates and Bayesian estimates to account for parameter uncertainty. We find...

It is well known that non-normality plays an important role in asset and risk management. However, handling a large number of assets has long been a challenge. In this paper, we present a statistical technique that extends Principal Component Analysis to higher moments such as skewness and...

It is well known that strategies that allow investors to allocate their wealth using return and volatility forecasts, the use of which are termed market and volatility timing, are of significant value. In this paper, we show that distribution timing, defined here as the ability to use forecasts...

We develop a new methodology that measures conditional dependency. We achieve this by using copula functions that link marginal distributions, here chosen to obey a GARCH-type model with time-varying skewness and kurtosis. We apply this model to daily returns of stock-market indices. We find...

In this paper, we extend the concept of the news impact curve of volatility developed by Engle and Ng (1993) to the higher moments and co-moments of the multivariate generalized autoregressive conditional heteroskedasticity (GARCH) model with non-normal innovations. For this purpose, we present...

In this study we compare the quality and information content of risk neutral densities obtained by various methods. We consider a non-structural method, based on a mixture of log-normal densities, and the semi-nonparametric ones, based on an Hermite approximation of Abken, Madan, Milne, and...

The aim of this paper is to compare various methods which extract a Risk Neutral Density (RND) out of PIBOR, as well as of Notional interest rate futures options, and to investigate how traders react to a political event. We first focus on five dates surrounding the 1997 snap election and...

"We evaluate how departure from normality may affect the allocation of assets. A Taylor series expansion of the expected utility allows to focus on certain moments and to compute the optimal portfolio allocation numerically. A decisive advantage of this approach is that it remains operational...