The paper derives the scalar special case of the well-known BEKK multivariate GARCH model using a multivariate extension of the random coeffi cient autoregressive (RCA) model. This representation establishes the relevant structural and asymptotic properties of the scalar BEKK model using the theoretical results available in the literature for general multivariate GARCH. Suffi cient conditions for the (direct) DCC model to be consistent with a scalar BEKK representation are established. Moreover, an indirect DCC model that is consistent with the scalar BEKK representation is obtained, and is compared with the direct DCC model using an empirical example. The paper shows, within an asset allocation and risk measurement framework, that the two models are similar in terms of providing parameter estimates and forecasting value-at-risk thresholds for equally weighted and minimum variance portfolios.
Scalar BEKK and indirect DCC
CAPORIN, MASSIMILIANO;
2008
Abstract
The paper derives the scalar special case of the well-known BEKK multivariate GARCH model using a multivariate extension of the random coeffi cient autoregressive (RCA) model. This representation establishes the relevant structural and asymptotic properties of the scalar BEKK model using the theoretical results available in the literature for general multivariate GARCH. Suffi cient conditions for the (direct) DCC model to be consistent with a scalar BEKK representation are established. Moreover, an indirect DCC model that is consistent with the scalar BEKK representation is obtained, and is compared with the direct DCC model using an empirical example. The paper shows, within an asset allocation and risk measurement framework, that the two models are similar in terms of providing parameter estimates and forecasting value-at-risk thresholds for equally weighted and minimum variance portfolios.Pubblicazioni consigliate
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