European Business Schools Librarian's Group

Les Cahiers de Recherche,
HEC Paris

No 709: Entropy densities

Michael ROCKINGER and Eric JONDEAU

Abstract: The entropy principle yields, for a given set of moments, a density that involves the smallest amount of prior information. We first show how entropy densities may be constructed in a numerically efficient way as the minimization of a potential. Next, for the case where the first four moments are given, we characterize the skewness-kurtosis domain for which densities are defined. This domain is found to be much larger that for Hermite or Edgeworth expansions. Last, we show how this technique can be used to estimate a GARCH model where skewness and kurtosis are time varying.

Keywords: Entropy; Semi-nonparametric estimation; Time-Varying skewness and Kurtosis; Garch Model

JEL-codes: C40; C61; G10

19 pages, February 1, 2000

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