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The performance of higher moments estimators: an empirical study

Harun, Hanani Farhah and Abdullah, Mimi Hafizah (2019) The performance of higher moments estimators: an empirical study. Malaysian Journal of Mathematical Sciences, 13 (SI). pp. 35-50. ISSN 18238343

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This study investigates the performance of higher order moments, realised from the model-free Bakshi-Kapadia-Madan (MFBKM). We concentrate on investigating higher order option-implied moments â variance, skewness and kurtosis, chosen in relation to contracts defined in MFBKM, i.e. volatility, cubic, and quartic contract. The three approaches adopted in order to estimate the integrals of the defined MFBKM contracts are the basic (trapezoidal-rule), adapted (single-combined)and advanced method (cubic-spline). The sample data is extracted from DJIA index options data, which covers the period from January 2009 until December 2015. The results show that the advanced method performs poorly in estimating the MFBKM, especially in the case of skewness and kurtosis integrals estimation. The advanced method outperforms the other approaches in the case of the variance estimation. In estimating both model-free skewness and kurtosis, the adapted method is found to perform the best, instead.

Item Type: Article (Journal)
Additional Information: 4482/73561
Uncontrolled Keywords: cubic-spline, higher order moments, model-free, options and trapezoidal-rule.
Subjects: Q Science > QA Mathematics
Q Science > QA Mathematics > QA276 Mathematical Statistics
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button): Kulliyyah of Science
Kulliyyah of Science > Department of Computational and Theoretical Sciences
Depositing User: Ms Mimi Hafizah Abdullah
Date Deposited: 08 Aug 2019 09:21
Last Modified: 05 Sep 2020 08:29
URI: http://irep.iium.edu.my/id/eprint/73561

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