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Matching a distribution by matching quantiles estimation

Sgouropoulos, Nikolaos, Yao, Qiwei and Yastremiz, Claudia (2015) Matching a distribution by matching quantiles estimation. Journal of the American Statistical Association, 110 (510). pp. 742-759. ISSN 0162-1459

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Identification Number: 10.1080/01621459.2014.929522

Abstract

Motivated by the problem of selecting representative portfolios for backtesting counterparty credit risks, we propose a matching quantiles estimation (MQE) method for matching a target distribution by that of a linear combination of a set of random variables. An iterative procedure based on the ordinary least squares estimation (OLS) is proposed to compute MQE. MQE can be easily modified by adding a LASSO penalty term if a sparse representation is desired, or by restricting the matching within certain range of quantiles to match a part of the target distribution. The convergence of the algorithm and the asymptotic properties of the estimation, both with or without LASSO, are established. A measure and an associated statistical test are proposed to assess the goodness-of-match. The finite sample properties are illustrated by simulation. An application in selecting a counterparty representative portfolio with a real data set is reported. The proposed MQE also finds applications in portfolio tracking, which demonstrates the usefulness of combining MQE with LASSO.

Item Type: Article
Official URL: http://www.tandfonline.com/doi/abs/10.1080/0162145...
Additional Information: © 2015 The Authors © CC BY 3.0
Divisions: Statistics
Subjects: H Social Sciences > HA Statistics
H Social Sciences > HJ Public Finance
Sets: Departments > Statistics
Date Deposited: 01 Jul 2014 11:33
Last Modified: 20 Mar 2019 02:37
Projects: EP/G026874/1, EP/L01226X/1
Funders: Engineering and Physical Sciences Research Council
URI: http://eprints.lse.ac.uk/id/eprint/57221

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