Median Modifications of the EM-Algorithm for Separation of Mixtures of Probability Distributions and Their Applications to the Decomposition of Volatility of Financial Indexes*

Abstract

In this paper we propose the median modifications of the EM-algorithm and demonstrate their advantages in comparison with conventional methods by the example dealing with the numerical solution of the problem of decomposition of the volatility of financial indexes. We provide examples of volatility decompositions for AMEX, CAC 40, NIKKEI, and NASDAQ indexes.