Multivariate semi-nonparametric distributions with dynamic conditional correlations
AbstractThis paper generalizes the Dynamic Conditional Correlation (DCC) model of Engle (2002), incorporating a flexible non-Gaussian distribution based on Gram-Charlier expansions. The resulting semi-nonparametric-DCC (SNP-DCC) model allows estimation in two stages and deals with the negativity problem which is inherent in truncated SNP densities. We test the performance of a SNP-DCC model with respect to the (Gaussian)-DCC through an empirical application of density forecasting for portfolio returns. Our results show that the proposed multivariate model provides a better in-sample fit and forecast of the portfolio returns distribution, and thus is useful for financial risk forecasting and evaluation.
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Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Forecasting.
Volume (Year): 27 (2011)
Issue (Month): 2 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/ijforecast
Density forecasts; Financial markets; GARCH models; Multivariate time series; Semi-nonparametric methods;
Other versions of this item:
- Del Brio, Esther B. & Ñíguez, Trino-Manuel & Perote, Javier, 2011. "Multivariate semi-nonparametric distributions with dynamic conditional correlations," International Journal of Forecasting, Elsevier, vol. 27(2), pages 347-364, April.
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