Template-Type: ReDIF-Paper 1.0
Author-Name: Asai, M.
Author-Name-Last: Asai
Author-Name-First: Manabu
Author-Person: pas73
Author-Name: Caporin, M.
Author-Name-Last: Caporin
Author-Name-First: Massimiliano
Author-Person: pca441
Author-Name: McAleer, M.J.
Author-Name-Last: McAleer
Author-Name-First: Michael
Author-Person: pmc90
Title: Forecasting Value-at-Risk Using Block Structure Multivariate Stochastic Volatility Models
Abstract: Most multivariate variance or volatility models suffer from a common problem, the “curse of dimensionality”. For this reason, most are fitted under strong parametric restrictions that reduce the interpretation and flexibility of the models. Recently, the literature has focused on multivariate models with milder restrictions, whose purpose was to combine the need for interpretability and efficiency faced by model users with the computational problems that may emerge when the number of assets is quite large. We contribute to this strand of the literature proposing a block-type parameterization for multivariate stochastic volatility models. The empirical analysis on stock returns on US market shows that 1% and 5 % Value-at-Risk thresholds based on one-step-ahead forecasts of covariances by the new specification are satisfactory for the period includes the global financial crisis.
Creation-Date: 2012-03-01
File-URL: https://repub.eur.nl/pub/31985/EI2012-02.pdf
File-Format: application/pdf
Series: RePEc:ems:eureir
Number: EI 2012-02
Keywords: block structures, course of dimensionality, heavy-tailed distribution, leverage effects, multi-factors, multivariate stochastic volatility
Handle: RePEc:ems:eureir:31985