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Dynamic semi-parametric factor model for functional expectiles

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  • Burdejová, Petra
  • Härdle, Wolfgang Karl

Abstract

High-frequency data can provide us with a quantity of informa- tion for forecasting, help to calculate and prevent the future risk based on extremes. This tail behaviour is very often driven by ex- ogenous components and may be modelled conditional on other vari- ables. However, many of these phenomena are observed over time, exhibiting non-trivial dynamics and dependencies. We propose a func- tional dynamic factor model to study the dynamics of expectile curves. The complexity of the model and the number of dependent variables are reduced by lasso penalization. The functional factors serve as a low-dimensional representation of the conditional tail event, while the time-variation is captured by factor loadings. We illustrate the model with an application to climatology, where daily data over years on temperature, rainfalls or strength of wind are available.

Suggested Citation

  • Burdejová, Petra & Härdle, Wolfgang Karl, 2017. "Dynamic semi-parametric factor model for functional expectiles," SFB 649 Discussion Papers 2017-027, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2017-027
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    References listed on IDEAS

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    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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