Post by Sapphire Capital on Sept 15, 2008 23:11:19 GMT 4
Modelling and Forecasting Multivariate Realized Volatility
Roxana Chiriac
University of Konstanz - Department of Economics; University of Konstanz - Center of Finance & Econometrics (CoFE)
Valeri Voev
University of Aarhus - CREATES
September 2, 2008
Abstract:
This paper proposes a methodology for modelling time series of realized covariance matrices in order to forecast multivariate risks. The approach allows for flexible dynamic dependence patterns and guarantees positive definiteness of the resulting forecasts without imposing parameter restrictions. We provide an empirical application of the model, in which we show by means of stochastic dominance tests that the returns from an optimal portfolio based on the model's forecasts second-order dominate returns of portfolios optimized on the basis of traditional MGARCH models. This result implies that any risk-averse investor, regardless of the type of utility function, would be better-off using our model.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1262160_code357906.pdf?abstractid=1262160&mirid=2
Roxana Chiriac
University of Konstanz - Department of Economics; University of Konstanz - Center of Finance & Econometrics (CoFE)
Valeri Voev
University of Aarhus - CREATES
September 2, 2008
Abstract:
This paper proposes a methodology for modelling time series of realized covariance matrices in order to forecast multivariate risks. The approach allows for flexible dynamic dependence patterns and guarantees positive definiteness of the resulting forecasts without imposing parameter restrictions. We provide an empirical application of the model, in which we show by means of stochastic dominance tests that the returns from an optimal portfolio based on the model's forecasts second-order dominate returns of portfolios optimized on the basis of traditional MGARCH models. This result implies that any risk-averse investor, regardless of the type of utility function, would be better-off using our model.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1262160_code357906.pdf?abstractid=1262160&mirid=2