Arbeitspapier
Modeling Dynamic Volatilities and Correlations under Skewness and Fat Tails
We propose a new model for dynamic volatilities and correlations of skewed and heavy-tailed data. Our model endows the Generalized Hyperbolic distribution with time-varying parameters driven by the score of the observation density function. The key novelty in our approach is the fact that the skewed and fat-tailed shape of the distribution directly affects the dynamic behavior of the time-varying parameters. It distinguishes our approach from familiar alternatives such as the generalized autoregressive conditional heteroskedasticity model and the dynamic conditional correlation model where distributional assumptions affect the likelihood but not the parameter dynamics. We present a modified expectation-maximization algorithm to estimate the model. Simulated and empirical evidence shows that the model outperforms its close competitors if skewness and kurtosis are relevant features of the data.
- Language
-
Englisch
- Bibliographic citation
-
Series: Tinbergen Institute Discussion Paper ; No. 11-078/2/DSF22
- Classification
-
Wirtschaft
Econometric and Statistical Methods and Methodology: General
Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
- Subject
-
Dynamic conditional correlations
Generalized Hyperbolic distributions
Observation driven models
Volatilität
Statistische Verteilung
Korrelation
Statistische Methode
Theorie
- Event
-
Geistige Schöpfung
- (who)
-
Zhang, Xin
Creal, Drew
Koopman, Siem Jan
Lucas, Andre
- Event
-
Veröffentlichung
- (who)
-
Tinbergen Institute
- (where)
-
Amsterdam and Rotterdam
- (when)
-
2011
- Handle
- Last update
-
10.03.2025, 11:41 AM CET
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Zhang, Xin
- Creal, Drew
- Koopman, Siem Jan
- Lucas, Andre
- Tinbergen Institute
Time of origin
- 2011
Other Objects (12)
Long Memory Dynamics for Multivariate Dependence under Heavy Tails
A Dynamic Multivariate Heavy-Tailed Model for Time-Varying Volatilities and Correlations
Business and Default Cycles for Credit Risk
Measuring Synchronisation and Convergence of Business Cycles
Seasonality with Trend and Cycle Interactions in Unobserved Components Models
Unobserved Components with Stochastic Volatility in U.S. Inflation: Estimation and Signal Extraction
Generalized Dynamic Panel Data Models with Random Effects for Cross-Section and Time
Models with Time-varying Mean and Variance: A Robust Analysis of U.S. Industrial Production
Forecasting the Variability of Stock Index Returns with Stochastic Volatility Models and Implied Volatility
A Dynamic Bivariate Poisson Model for Analysing and Forecasting Match Results in the English Premier League
Beta observation-driven models with exogenous regressors: a joint analysis of realized correlation and leverage effects
Common and Idiosyncratic Conditional Volatility Factors: Theory and Empirical Evidence
Long Memory Dynamics for Multivariate Dependence under Heavy Tails
A Dynamic Multivariate Heavy-Tailed Model for Time-Varying Volatilities and Correlations
Business and Default Cycles for Credit Risk
Measuring Synchronisation and Convergence of Business Cycles
Seasonality with Trend and Cycle Interactions in Unobserved Components Models
Unobserved Components with Stochastic Volatility in U.S. Inflation: Estimation and Signal Extraction
Generalized Dynamic Panel Data Models with Random Effects for Cross-Section and Time
Models with Time-varying Mean and Variance: A Robust Analysis of U.S. Industrial Production
Forecasting the Variability of Stock Index Returns with Stochastic Volatility Models and Implied Volatility
A Dynamic Bivariate Poisson Model for Analysing and Forecasting Match Results in the English Premier League
Beta observation-driven models with exogenous regressors: a joint analysis of realized correlation and leverage effects
Common and Idiosyncratic Conditional Volatility Factors: Theory and Empirical Evidence
Long Memory Dynamics for Multivariate Dependence under Heavy Tails
A Dynamic Multivariate Heavy-Tailed Model for Time-Varying Volatilities and Correlations
Business and Default Cycles for Credit Risk
Measuring Synchronisation and Convergence of Business Cycles
Seasonality with Trend and Cycle Interactions in Unobserved Components Models
Unobserved Components with Stochastic Volatility in U.S. Inflation: Estimation and Signal Extraction
Generalized Dynamic Panel Data Models with Random Effects for Cross-Section and Time
Models with Time-varying Mean and Variance: A Robust Analysis of U.S. Industrial Production
Forecasting the Variability of Stock Index Returns with Stochastic Volatility Models and Implied Volatility
A Dynamic Bivariate Poisson Model for Analysing and Forecasting Match Results in the English Premier League
Beta observation-driven models with exogenous regressors: a joint analysis of realized correlation and leverage effects