Empirical Bayes Estimation of Securities Price Parameters
This paper considers the estimation of parameters in the price distribution of a vector of assets. Using a geometric Brownian motion model for price movements, where the model parameters have prior distributions, the form of the conditional distribution of future prices given the price history is developed. Using a truncation of the eigenstructure of the autocovariance matrix for securities prices, estimates of parameters in the conditional distribution are derived. The truncation estimator is a substantial improvement compared with traditional estimators such as the historic means and Bayes-Stein.
KeywordsSupply Chain Conditional Distribution Truncation Estimator Portfolio Choice Constant Relative Risk Aversion
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