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Forecasting Value-at-Risk Using Block Structure Multivariate Stochastic Volatility Models

Author

Listed:
  • Michael McAleer

    (Erasmus University Rotterdam,Tinbergen Institute,Kyoto University,Complutense University of Madrid)

  • Manabu Asai

    (Faculty of Economics Soka University)

  • Massimiliano Caporin

    (Department of Economics and Management “Marco Fanno†University of Padova)

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.

Suggested Citation

  • Michael McAleer & Manabu Asai & Massimiliano Caporin, 2012. "Forecasting Value-at-Risk Using Block Structure Multivariate Stochastic Volatility Models," KIER Working Papers 812, Kyoto University, Institute of Economic Research.
    • Handle: RePEc:kyo:wpaper:812
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    Cited by:

    1. Hammoudeh, Shawkat & McAleer, Michael, 2015. "Advances in financial risk management and economic policy uncertainty: An overview," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 1-7.
    2. Chen, Qiang & Gong, Yuting, 2019. "The economic sources of China's CSI 300 spot and futures volatilities before and after the 2015 stock market crisis," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 102-121.
    3. Kurose, Yuta & Omori, Yasuhiro, 2020. "Multiple-block dynamic equicorrelations with realized measures, leverage and endogeneity," Econometrics and Statistics, Elsevier, vol. 13(C), pages 46-68.
    4. Yuta Kurose & Yasuhiro Omori, "undated". "Multiple-lock Dynamic Equicorrelations with Realized Measures, Leverage and Endogeneity," CIRJE F-Series CIRJE-F-1075, CIRJE, Faculty of Economics, University of Tokyo.
    5. Benjamin Poignard & Manabu Asaiz, 2020. "A Penalised OLS Framework for High-Dimensional Multivariate Stochastic Volatility Models," Discussion Papers in Economics and Business 20-02, Osaka University, Graduate School of Economics.
    6. Yuta Kurose & Yasuhiro Omori, 2016. "Multiple-block Dynamic Equicorrelations with Realized Measures, Leverage and Endogeneity," CIRJE F-Series CIRJE-F-1024, CIRJE, Faculty of Economics, University of Tokyo.
    7. Lin, Tiantian & Liu, Dehong & Zhang, Lili & Lung, Peter, 2019. "The information content of realized volatility of sector indices in China’s stock market," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 625-640.
    8. Benjamin Poignard & Manabu Asai, 2023. "High‐dimensional sparse multivariate stochastic volatility models," Journal of Time Series Analysis, Wiley Blackwell, vol. 44(1), pages 4-22, January.

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    More about this item

    Keywords

    block structures; multivariate stochastic volatility; curse of dimensionality; leverage effects; multi-factors; heavy-tailed distribution.;
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General

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