Generalized financial ratios |
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| Authors: | Saralees Nadarajah Samuel Kotz |
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| Affiliation: | 1. School of Mathematics, University of Manchester, Manchester M60 1QD, U.K.School of Mathematics, University of Manchester, Manchester M60 1QD, U.K.===;2. George Washington University, Washington, DC, U.S.A. |
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| Abstract: | Ratios of random variables are prevalent in finance. Examples include: current ratio, sales margin, changes in capital employed, interest cover, liabilities ratio and financial leverage ratio. In this note, we derive the exact distribution of the ratio X/(X + Y) when X and Y are independent generalized Pareto random variables, Pareto distribution being the first and the most popular distribution used in finance. Copyright © 2007 John Wiley & Sons, Ltd. |
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| Keywords: | financial ratios generalized Pareto distribution ratios of random variables |
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