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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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 |
| Library of Congress subject classification: | H Social Sciences > HA Statistics H Social Sciences > HJ Public Finance |
| Sets: | Departments > Statistics |
| Funders: | Engineering and Physical Sciences Research Council |
| Projects: | EP/G026874/1, EP/L01226X/1 |
| Date Deposited: | 01 Jul 2014 11:33 |
| URL: | http://eprints.lse.ac.uk/57221/ |
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