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Assumptions about the dynamic and distributional behavior of risk factors are crucial for the construction of optimal portfolios and for risk assessment. Although asset returns are generally characterized by conditionally varying volatilities and fat tails, the normal distribution with constant...
Persistent link: https://www.econbiz.de/10010298338
This paper shows how independent component analysis can be used to estimate the generalized orthogonal GARCH model in a fraction of the time otherwise required. The proposed method is a two-step procedure, separating the estimation of the correlation structure from that of the univariate...
Persistent link: https://www.econbiz.de/10013150668
Sequential maximum likelihood and GMM estimators of distributional parameters obtained from the standardised innovations of multivariate conditionally heteroskedastic dynamic regression models evaluated at Gaussian PML estimators preserve the consistency of mean and variance parameters while...
Persistent link: https://www.econbiz.de/10010556466
In the aftermath of the Global Financial Crisis, some risk management practitioners have advocated wider adoption of Bayesian inference to replace Value- at-Risk (VaR) models in order to minimize risk failures. Despite its limitations, the Bayesian methodology has significant advantages. Just...
Persistent link: https://www.econbiz.de/10014263882
In aftermath of the Financial Crisis, some risk management practitioners advocate wider adoption of Bayesian inference to replace Value-at-Risk (VaR) models for minimizing risk failures (Borison & Hamm, 2010). They claim reliance of Bayesian inference on subjective judgment, the key limitation...
Persistent link: https://www.econbiz.de/10013031477
The estimation of multivariate GARCH models remains a challenging task, even in modern computer environments. This manuscript shows how Independent Component Analysis can be used to estimate the Generalized Orthogonal GARCH model in a fraction of the time otherwise required. The proposed method...
Persistent link: https://www.econbiz.de/10005227621
In this paper an in-depth analysis of the estimation of the realized volatility Wishart Autoregressive model is presented. We focus in particular on the estimation of the degrees of freedom. A new estimator is proposed. Monte Carlo simulations show that this novel estimator is more efficient...
Persistent link: https://www.econbiz.de/10012718762
Normal distribution of the residuals is the traditional assumption in the classical multivariate time series models. Nevertheless it is not very often consistent with the real data. Copulae allows for an extension of the classical time series models to nonelliptically distributed residuals. In...
Persistent link: https://www.econbiz.de/10003850706
Long memory (long-term dependence) of volatility counts as one of the ubiquitous stylized facts of financial data. Inspired by the long memory property, multifractal processes have recently been introduced as a new tool for modeling financial time series. In this paper, we propose a parsimonious...
Persistent link: https://www.econbiz.de/10003932609
To examine the familiar tradeoff between risk and return in financial investments, we use a rolling two-stage stochastic program to compare mean-risk optimization models with time series momentum strategies. In a backtest of allocating investment between a market index and a risk-free asset, we...
Persistent link: https://www.econbiz.de/10013247805