Working Paper
Analytical solution for the constrained Hansen-Jagannathan distance under multivariate ellipticity
Abstract: We provide an in-depth analysis of the theoretical properties of the Hansen-Jagannathan (HJ) distance that incorporates a no-arbitrage constraint. Under a multivariate elliptical distribution assumption, we present explicit expressions for the HJ-distance with a no-arbitrage constraint, the associated Lagrange multipliers, and the SDF parameters in the case of linear SDFs. This approach allows us to analyze the benefits and costs of using the HJ-distance with a no-arbitrage constraint to rank asset pricing models.
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https://fraser.stlouisfed.org/title/working-papers-federal-reserve-bank-atlanta-8586/analytical-solution-constrained-hansen-jagannathan-distance-multivariate-ellipticity-657053
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Bibliographic Information
Provider: Federal Reserve Bank of Atlanta
Part of Series: FRB Atlanta Working Paper
Publication Date: 2012
Number: 2012-18