Asai, Manabu and Caporin, Massimiliano and McAleer, Michael (2012) Forecasting Value-at-Risk Using Block Structure Multivariate Stochastic Volatility Models. [Working Paper or Technical Report] (Submitted)
Available under License Creative Commons Attribution Non-commercial.
Official URL: http://eprints.ucm.es/14621/
Most multivariate variance or volatility models suffer from a common problem, the “curse of dimensionality”. For this reason, most are fitted under strong parametric restrictions that reduce the interpretation and flexibility of the models. Recently, the literature has focused on multivariate models with milder restrictions, whose purpose was to combine the need for interpretability and efficiency faced by model users with the computational problems that may emerge when the number of assets is quite large. We contribute to this strand of the literature proposing a block-type parameterization for multivariate stochastic volatility models. The empirical analysis on stock returns on US market shows that 1% and 5 % Value-at-Risk thresholds based on one-step-ahead forecasts of covariances by the new specification are satisfactory for the period includes the global financial crisis.
|Item Type:||Working Paper or Technical Report|
|Additional Information:||JEL classifications: C32, C51, C10.|
|Uncontrolled Keywords:||Block structures, Multivariate stochastic volatility, Curse of dimensionality, Leverage effects; Multi-factors, Heavy-tailed distribution.|
|Subjects:||Social sciences > Economics > Econometrics|
|Series Name:||Documentos de Trabajo del Instituto Complutense de Análisis Económico (ICAE)|
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|Deposited On:||05 Mar 2012 12:27|
|Last Modified:||06 Feb 2014 10:05|
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