Questions tagged [pareto-distribution]

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Why stock prices changes don't follow Pareto Distribution?

I calculated the distribution of the stock price changes (diffs). The diffs are multiplicative, $d_t=p_{t} / p_{t-1}$. As far as I know the distribution should look like Power law distribution (Pareto ...
6
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1answer
322 views

What are the differences between Pareto, Fréchet, power law, fat tails and fractal?

I do get that these concepts are well-defined, but I am referring to extreme value theory in particular, and the fact that these ideas are often tossed around as synonyms, leaving the details and ...
1
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1answer
77 views

VaR and Expected Shorfall estimations with negative shape parameter of a GPD (Extreme Value Theory )

So im trying to replicate an code from the Quantative Risk Management Book (https://github.com/qrmtutorial/qrm/blob/master/code/09_Market_Risk/09_Standard_methods_for_market_risk.R). But when i try a ...
2
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0answers
214 views

Example how to model stock price with Pareto distribution according to Mandelbrot and Taleb

There's a paper by B. Mandelbrot and N. Taleb Mild vs Wild Randomness that says that Pareto distributions is a better fit for modelling price changes. ...
0
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1answer
109 views

Extreme Value Theory: GPD application to returns, not losses (PnL)?

As it is often presented, Extreme Value Theory (EVT) is applied to financial losses (and gains as well, but always focusing in the tails). By EVT, I especially refer to: 1) Mean excess plot to find ...
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1answer
870 views

Fitting Tail Data to Generalized Pareto Distribution in R

I have a dataset of S&P500 returns for 16 yrs. When I plot the ECDF of the S&P500 and compare it against the CDF of an equivalent Normal distribution, I can see the existence of Fat Tails in ...