In probability and statistics, an elliptical distribution is any member of a broad family of probability distributions that generalize the multivariate normal distribution and inherit some of its properties.
for a specified vector , positive-definite matrix , and characteristic function . The function is known as the characteristic generator of the elliptical distribution.
Elliptical distributions can also be defined in terms of their density functions. When they exist, the density functions f have the structure:
where is the scale factor, is an -dimensional random vector with median vector (which is also the mean vector if the latter exists), is a positive definite matrix which is proportional to the covariance matrix if the latter exists, and is a function mapping from the non-negative reals to the non-negative reals giving a finite area under the curve.
In the 2-dimensional case where the density exists, each iso-density locus (the set of x1,x2 pairs all giving a particular value of ) is an ellipse (hence the name elliptical distribution). More generally, for arbitrary n the iso-density loci are ellipsoids.
The multivariate normal distribution is the special case in which for quadratic form . While the multivariate normal is unbounded (each element of can take on arbitrarily large positive or negative values with non-zero probability, because for all non-negative ), in general elliptical distributions can be bounded or unbounded—such a distribution is bounded if for all greater than some value.
Because the index variable x enters the density function quadratically, all elliptical distributions are symmetric about
Elliptical distributions are important in portfolio theory because, if the returns on all assets available for portfolio formation are jointly elliptically distributed, then all portfolios can be characterized completely by their location and scale – that is, any two portfolios with identical location and scale of portfolio return have identical distributions of portfolio return (Chamberlain 1983; Owen and Rabinovitch 1983). For multi-normal distributions, location and scale correspond to mean and standard deviation.
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