New approaches of the DCC-GARCH residual: Application to foreign exchange rates
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arXiv
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| Hauptverfasser: | , , |
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| Format: | Preprint |
| Veröffentlicht: |
2024
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| _version_ | 1866913576826961920 |
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| author | Shiraya, Kenichiro Suzuki, Kanji Yamakami, Tomohisa |
| author_facet | Shiraya, Kenichiro Suzuki, Kanji Yamakami, Tomohisa |
| contents | Two formulations are proposed to filter out correlations in the residuals of the multivariate GARCH model. The first approach is to estimate the correlation matrix as a parameter and transform any joint distribution to have an arbitrary correlation matrix. The second approach transforms time series data into an uncorrelated residual based on the eigenvalue decomposition of a correlation matrix. The empirical performance of these methods is examined through a prediction task for foreign exchange rates and compared with other methodologies in terms of the out-of-sample likelihood. By using these approaches, the DCC-GARCH residual can be almost independent. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2411_08246 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | New approaches of the DCC-GARCH residual: Application to foreign exchange rates Shiraya, Kenichiro Suzuki, Kanji Yamakami, Tomohisa Statistical Finance Two formulations are proposed to filter out correlations in the residuals of the multivariate GARCH model. The first approach is to estimate the correlation matrix as a parameter and transform any joint distribution to have an arbitrary correlation matrix. The second approach transforms time series data into an uncorrelated residual based on the eigenvalue decomposition of a correlation matrix. The empirical performance of these methods is examined through a prediction task for foreign exchange rates and compared with other methodologies in terms of the out-of-sample likelihood. By using these approaches, the DCC-GARCH residual can be almost independent. |
| title | New approaches of the DCC-GARCH residual: Application to foreign exchange rates |
| topic | Statistical Finance |
| url | https://arxiv.org/abs/2411.08246 |