Extreme Events and Portfolio Construction [8]

Go to: Summary | Previous | Next   
Bullet points include: E.g. draw X with prob p from N1 and prob (1-p) from N2. Quite different behaviour to linear combination mixtures, i.e. a.X1 + b.X2. If N1 and N2 have same mean but different s.d.’s then distributional mixture is fat-tailed (if p NE 0 or 1) but linear combination mixture isn’t. Time-varying volatility is similar, involves draws from different distributions at different times

Contents | Prev | Next | Library

Desktop view | Switch to Mobile