Asset pricing with skewed-normal return

Carmichæl, Benoı̂t; Coën, Alain

doi:10.1016/j.frl.2013.01.001

Cited by 23 publications

(8 citation statements)

References 13 publications

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“…Eling (2012) confirmed that the skew-normal distribution was a better alternative for modeling capital market returns compared to the normal distribution. Carmichael and Co€ en (2013) derived explicit expressions of assets skewness premiums and studied the effect of skewness and coskewness on asset valuation. Bernardi (2013) provided an analytical formula for some well-known risk measures based on finite mixtures of univariate skewed normal.…”

Section: Literature Reviewmentioning

confidence: 99%

The effects of skewness on hedging decisions: an application of the skew-normal distribution in WTI and Brent futures

Wang

et al. 2021

Economic Research-Ekonomska Istraživanja

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Skewness, as a proxy for extreme risks or losses, deserves more attention from risk management work of portfolio selection and futures hedging. We evaluate the hedging performance of strategies considering the skewness for two major benchmark international crude oil markets, Brent and WTI, with sample period ranging from June 11, 2018, to May 19, 2021. This paper contributes to the literature by accounting for futures basis and the skewness of the hedged portfolio return. Specifically, we first extend the existing literature of Lien ( 2010), whose study investigated the effect of skewness on optimal production and hedging decisions, to the case of a futures bias existing. Then, we propose minimum-risk hedging models wherein the return of the hedged portfolio return is assumed to follow a skew-normal distribution, which is a generalization of normality assumption. From the empirical results, we find that skewness cannot be ignored, otherwise it will lead to wrong hedging decision. Furthermore, hedging strategies under skew-normal distribution are outperformed than that under the normal distribution assumption. The research results of this paper have important implications for investors and decision makers to hedge the price risk of crude oil in extreme market conditions.

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Section: Literature Reviewmentioning

confidence: 99%

The effects of skewness on hedging decisions: an application of the skew-normal distribution in WTI and Brent futures

Wang

et al. 2021

Economic Research-Ekonomska Istraživanja

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“…Barbi and Romagnoli [131] employ the extended skew normal distribution for similar applications. Carmichael and Coën [132] use the SN distribution to derive explicit expressions for the skewness premium of a financial asset. Alodaat and Al-Rawwash [133] apply the extended SN distribution to the EURO/USD exchange rate.…”

Section: Economics and Applied Financial Economicsmentioning

confidence: 99%

A Selective Overview of Skew-Elliptical and Related Distributions and of Their Applications

Adcock

Azzalini

2020

Symmetry

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Within the context of flexible parametric families of distributions, much work has been dedicated in recent years to the theme of skew-symmetric distributions, or symmetry-modulated distributions, as we prefer to call them. The present contribution constitutes a review of this area, with special emphasis on multivariate skew-elliptical families, which represent the subset with more immediate impact on applications. After providing background information of the distribution theory aspects, we focus on the aspects more relevant for applied work. The exposition is targeted to non-specialists in this domain, although some general knowledge of probability and multivariate statistics is assumed. Given this aim, the mathematical profile is kept to the minimum required.

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“…Formulations that illustrate the extension of normal‐based constructions to more flexible ones, as envisaged earlier, are provided by the work of Adcock & Shutes and Carmichael & Coën exploiting properties of closure of the skew‐normal family with respect to affine transformations that are at the basis of the original formulations in finance theory linked to the normal distribution. More examples of this sort exist; for instance, the work of Adcock provides an extension of similar nature with respect to the basic Student's t construction.…”

Section: Multivariate Distributions With Shape Parametersmentioning

confidence: 99%