1
Non-Normal Distributions
Reading: Christoffersen, Elements of Financial
Risk Management, Chapter 6
2
Overview
• Returns are conditionally normal if the dynamically standardized
returns are normally distributed.
A standardized return is zt = Rt/t, where t is the (estimate) of the
standard deviation of the return Rt. Typically t comes from a
variance forecasting model, e.g. a GARCH model.
• Fig.6.1 illustrates how histograms from returns and standardized
returns typicallydo not conform to…

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