Estimation of Stable Distributions by Indirect Inference

62 Pages Posted: 9 Sep 2005 Last revised: 11 Jun 2009

See all articles by René Garcia

René Garcia

Université de Montréal - CIREQ - Département de sciences économiques; University of Montreal

Eric Renault

University of North Carolina (UNC) at Chapel Hill - Department of Economics

David Veredas

Vlerick Business School

Date Written: May 1, 2009

Abstract

This article deals with the estimation of the parameters of an a-stable distribution with indirect inference, using the skewed-t distribution as an auxiliary model. The latter distribution appears as a good candidate since it has the same number of parameters as the a-stable distribution, with each parameter playing a similar role. To improve the properties of the estimator in finite sample, we use constrained indirect inference. In a Monte Carlo study we show that this method delivers estimators with good properties in finite sample. We provide an empirical application to the distribution of jumps in the S&P 500 index returns.

Keywords: Stable distribution, Indirect Inference, Constrained Indirect Inference, Skewed-t distribution

JEL Classification: C13, C15, G11

Suggested Citation

Garcia, René and Renault, Eric and Veredas, David, Estimation of Stable Distributions by Indirect Inference (May 1, 2009). Available at SSRN: https://ssrn.com/abstract=795366 or http://dx.doi.org/10.2139/ssrn.795366

René Garcia

Université de Montréal - CIREQ - Département de sciences économiques ( email )

C.P. 6128, succursale Centre-Ville
3150, rue Jean-Brillant, bureau C-6027
Montreal, Quebec H3C 3J7
Canada
514-985-4014 (Phone)

University of Montreal ( email )

United States

Eric Renault

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

David Veredas (Contact Author)

Vlerick Business School ( email )

Library
REEP 1
Gent, BE-9000
Belgium

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