A generalized Dynamic Conditional Correlation Model for Portfolio Risk Evaluation
AbstractWe propose a generalization of the Dynamic Conditional Correlation multivariate GARCH model of Engle (2002) and of the Asymmetric Dynamic Conditional Correlation model of Cappiello et al. (2006). The model we propose introduces a block structure in parameter matrices that allows for interdependence with a reduced number of parameters. Our model nests the Flexible Dynamic Conditional Correlation model of Billio et al. (2006) and is named Quadratic Flexible Dynamic Conditional Correlation Multivariate GARCH. In the paper, we provide conditions for positive definiteness of the conditional correlations. We also present an empirical application to the Italian stock market comparing alternative correlation models for portfolio risk evaluation.
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Bibliographic InfoPaper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2006_53.
Date of creation: 2006
Date of revision:
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More information through EDIRC
Dynamic correlations; Block-structures; Flexible correlation models;
Find related papers by JEL classification:
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
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