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"GHADA and GHICA - Tools for Modern Risk Management"

Speaker: Professor Dr. Wolfgang Härdle, CASE - Center for Applied Statistics and Economics, Institute for Statistics and Econometrics, School of Business and Economics, Humboldt-Universität zu Berlin

Abstract: Risk management technology applied to high dimensional portfolios needs simple and fast methods for calculation of Value-at-Risk (VaR). The multivariate normal framework provides a simple off-the-shelf methodology but lacks the heavy tailed distributional properties that are observed in data. A principle component based method (tied closely to the elliptical structure of the distribution) is therefore expected to be unsatisfactory. Here we propose and analyze a technology that is based on Independent Component Analysis (ICA) in combination with Generalized Hyperbolic (GH) distributions. These distributions offer a flexible alternative. We study the proposed GHADA (adaptive choice of volatility) and GHICA methodology in an extensive simulation study and apply it to a high dimensional portfolio situation. Our analysis yields accurate VaRs.


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9 May 2006
City - Haymarket CB05B Level 1, Room B113
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