| Regarding the nature of yield data, there are two basic characteristics that need to be accommodated while we are about to model a yield distribution. The first one is the nonstationary nature of the yield distribution, which causes the heteroscedasticity related problems. The second one is the left skewness of the yield distribution. A common approach to this problem is based on a two-stage method in which the yields are detrended first and the detrended yields are taken as observed data modeled by various parametric and nonparametric methods. Based on a two-stage estimation structure, a mixed normal distribution seems to better capture the secondary distribution from catastrophic years than a Beta distribution. The implication to the risk management is... |
