Parametric and Nonparametric Models of Joint Returns: Density, Dependence, and Portfolio Tail Risk

We compare parametric, empirical and neural models of joint asset returns to determine whether greater flexibility improves density, dependence and portfolio risk. Gaussian, shrinkage-Gaussian, Student and meta-t laws provide parametric benchmarks; meta-t joins asset-specific Student margins with a Student copula. Filtered historical simulation (FHS) supplies empirical innovations. Normalizing flows learn invertible density transformations, variational autoencoders learn latent-variable distributions, and Wasserstein GANs learn scenario generators. Separate volatility and correlation controls distinguish conditioning from innovation modeling. Ten estimation datasets per Student, meta-t and Heston synthetic law, and 2,514 CRSP test dates in five-basket and 100-stock panels, support paired comparisons with multiplicity control. Meta-t achieves the best observed exact density fit in both CRSP panels. Under common one-percent validation selection, no tested neural model establishes a risk-score improvement over FHS; alternative checkpoint rules change rankings. Student's 100-stock advantage depends on the comparison family. Variance filtering produces the largest point-score gains, with inconclusive adjusted tests. Synthetic results distinguish correct specification from architectural flexibility and separate likelihood quality from expected-shortfall accuracy. A Wishart–CIR extension relaxes a restricted covariance model's dispersion ceiling but fails the conditional numerical-stability gate. The evidence makes conditioning, specification and validation design central to assessing distributional flexibility.

Authors

Publication Details

Journal
Zenodo (CERN European Organization for Nuclear Research)
Published
2026-11-07
DOI
https://doi.org/10.5281/zenodo.24024954
Primary Topic
Financial Risk and Volatility Modeling
Type
preprint
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preprint

Parametric and Nonparametric Models of Joint Returns: Density, Dependence, and Portfolio Tail Risk

Miquel Noguer Alonso
Zenodo (CERN European Organization for Nuclear Research)
Financial Risk and Volatility Modeling
preprint

Parametric and Nonparametric Models of Joint Returns: Density, Dependence, and Portfolio Tail Risk

Miquel Noguer Alonso
preprint en

Abstract

We compare parametric, empirical and neural models of joint asset returns to determine whether greater flexibility improves density, dependence and portfolio risk. Gaussian, shrinkage-Gaussian, Student and meta-t laws provide parametric benchmarks; meta-t joins asset-specific Student margins with a Student copula. Filtered historical simulation (FHS) supplies empirical innovations. Normalizing flows learn invertible density transformations, variational autoencoders learn latent-variable distributions, and Wasserstein GANs learn scenario generators. Separate volatility and correlation controls distinguish conditioning from innovation modeling. Ten estimation datasets per Student, meta-t and Heston synthetic law, and 2,514 CRSP test dates in five-basket and 100-stock panels, support paired comparisons with multiplicity control. Meta-t achieves the best observed exact density fit in both CRSP panels. Under common one-percent validation selection, no tested neural model establishes a risk-score improvement over FHS; alternative checkpoint rules change rankings. Student's 100-stock advantage depends on the comparison family. Variance filtering produces the largest point-score gains, with inconclusive adjusted tests. Synthetic results distinguish correct specification from architectural flexibility and separate likelihood quality from expected-shortfall accuracy. A Wishart–CIR extension relaxes a restricted covariance model's dispersion ceiling but fails the conditional numerical-stability gate. The evidence makes conditioning, specification and validation design central to assessing distributional flexibility.

Zenodo (CERN European Organization for Nuclear Research)
Financial Risk and Volatility Modeling
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