Scribd
Upload
67 views16 pages

Skewness and Kurtosis in Finance

This document discusses a group project on financial mathematics. It defines skewness and kurtosis, which are measures of the asymmetry and peakedness of a distribution. Skewness measures the asymmetry around the mean, with positive skewness indicating a long right tail and negative skewness a long left tail. Kurtosis measures the peakedness of a distribution compared to a normal distribution, with positive excess kurtosis indicating flatness/long tails and negative excess kurtosis indicating peakedness. Examples are provided to illustrate positively skewed and kurtotic distributions. Formulas are given for calculating skewness and kurtosis from a data set.

Uploaded by

Punong Grande NHS Banga NHS Annex (R XII - South Cotabato)
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
67 views16 pages

Skewness and Kurtosis in Finance

This document discusses a group project on financial mathematics. It defines skewness and kurtosis, which are measures of the asymmetry and peakedness of a distribution. Skewness measures the asymmetry around the mean, with positive skewness indicating a long right tail and negative skewness a long left tail. Kurtosis measures the peakedness of a distribution compared to a normal distribution, with positive excess kurtosis indicating flatness/long tails and negative excess kurtosis indicating peakedness. Examples are provided to illustrate positively skewed and kurtotic distributions. Formulas are given for calculating skewness and kurtosis from a data set.

Uploaded by

Punong Grande NHS Banga NHS Annex (R XII - South Cotabato)
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

FINANCIAL MATHS GROUP PROJECT

NAVIN BAFNA
ARVIND SHAH
ABAHAN BANERJEE
ABHISHEK CHANDRA
ABHISHEK DHAWAN
“Mathematics is the only science
where one never knows what one
is talking about nor whether what
is said is true” - Bertrand Russell

LET US GIVE A TRY !!!!!


SKEWNESS
AND
KURTOSIS
Defining Skewness
Skewness is the measure of asymmetry of the
distribution of a real valued random
variable. It is the standardized 3rd central
moment of a distribution

 Positive Skewness indicates a long right tail


 Negative Skewness indicates a long left tail
 Zero Skewness indicates a symmetry around the mean
NORMAL DISTRIBUTION

NEGATIVE
SKEWNESS POSITIVE
CALCULATING SKEWNESS
Given a set of returns r, t = 1,2…..T

Where r and sˆ are the estimated average and standard deviation


SKEWNESS ADJUSTMENT
 A gamma distribution is a SKEWNESS Number of SD measure to achieve 99%
better proxy for skewed    
portfolios -2.83 3.99
-2.00 3.61
-1.00 3.03
-0.67 2.80
SYMMETRIC
0.00 2.33
(NORMAL DISTRIBUTION) 0.67 1.83
1.00 1.59
2.00 0.99
2.83 0.71
   
Example: Skewness
“Positively Skewed Distribution”
 Suppose that we live in a neighborhood with 100 homes; 99 of them sell
for $ 100,000, and one sells for $ 1,000,[Link] median and the mode will
be $ 100,000, but the mean will be $ 109,000. Hence, the mean has been
"pulled" upward (to the right ) by the existence of one home (outlier) in the
neighborhood.

 For a negatively skewed distribution , the mean is less than


the median , which is less than the mode. In this case, there
are large, negative outlier s which tend to “pull" the mean
downward (to the left ).
Spreadsheet - for Positively
Skewed Distribution…
DEFINING KURTOSIS
KURTOSIS is a a measure of the "peakedness" of
the probability distribution of a real-valued
random variable. Its the standardized fourth
central moment of a distribution.

 Kurtosis for he normal distribution is 3


 Positive excess kurtosis indicate flatness (Long, Fat Tails)
 Negative excess kurtosis indicates peakedness
KURTOSIS
CALCULATING KURTOSIS
Example: Kurtosis
SOURCES
 INTL CFA DERIVATIVE MODULE
 CA MAFA MODULE
 WIKIPEDIA
 CASE STUDY ON MEASUREMENT
THANK YOU !!!

To
Prof. Mahendra Mehta

You might also like