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 ComponentAnalysis to higher moments such as skewness and...

We implement a long-horizon static and dynamic portfolio allocation involvinga risk-free and a risky asset. This model is calibrated at a quarterly frequencyfor ten European countries. We also use maximum-likelihood estimates andBayesian estimates to account for parameter uncertainty. We nd that...

This paper developes a new methodology to measure conditional dependency between time series each driven by complicated marginal distributions.

This paper investigates the implications of cross-country heterogeneity within the euro area for the design of optimal monetary policy. We build an optimizing-based multi-country model (MCM) describing the euro area in which differences between structural parameters across countries are allowed....

We evaluate how non-normality of asset returns and the temporal evolution of volatility and higher moments affects the conditional allocation of wealth. We show that if one neglects these aspects, as would be the case in a mean-variance allocation, a significant cost would arise. The performance...

In this paper, we extend the concept of News Impact Curve developed by Engle and Ng (1993) to the higher moments of the multivariate returns' distribution, thereby providing a tool to investigate the impact of shocks on the characteristics of the subsequent distribution. For this purpose, we...

Our paper addresses the correction of the aggregation bias in linear rational expectations modelswhen there is some unobserved micro-parameter heterogeneity and only macro data are available.Starting from Lewbel (1994), we propose two new consistent estimators, which rely on aexible parametric...

The purpose of this paper is two-fold. First is to extend the notions of an n-dimensional semimartingaleand its stochastic integral to a piecewise semimartingale of stochastic dimension. The propertiesof the former carry over largely intact to the latter, avoiding some of the pitfalls of...

Motivated by the Chinese experience, we analyze a semi-open economy where the centralbank has access to international capital markets, but the private sector has not. Thisenables the central bank to choose an interest rate different from the international rate.We examine the optimal policy of...

Following a trend of sustained and accelerated growth, the VIXfutures and options market has become a closely followed, active andliquid market. The standard stochastic volatility models | whichfocus on the modeling of instantaneous variance | are unable to t theentire term structure of VIX...