Change search
CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf
Evaluating Regime Switching in Dynamic Conditional Correlation
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematical Statistics.
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematical Statistics.
2013 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesisAlternative title
En utvärdering av regimskiftning i den dynamiska korrelationsmodellen DCC (Swedish)
Abstract [en]

This paper provides a comparative study of the Dynamic Conditional Correlation model introduced by Engle (2002) and the Independent Switching Dynamic Conditional Correlation model introduced by Lee (2010) by evaluating the models for a set of known correlation processes. The evaluation is also extended to cover empirical data to assess the practical performance of the models. The data include the price of gold and oil, the yield on benchmark 10 year U.S. Treasury notes and the Euro-U.S. dollar exchange rate from January 2007 to December 2009. In addition, a general description of the difficulties of estimating correlations is presented to give the reader a better understanding of the limitations of the models. From the results, it is concluded that there is no general superiority of neither the IS-DCC model nor the DCC model, except for very short-lived correlation shifts. For short-lived shifts, the IS-DCC model outperforms in both detecting and measuring correlations. However, this paper recommends that these models are used in combination with a qualitative study in empirical situations to better understand the underlying correlation dynamics.

Abstract [sv]

Denna rapport innehåller en jämförande studie av den dynamiska korrelationsmodellen DCC som presenterades av Engle (2002) och den regimskiftande dynamiska korrelationsmodellen IS-DCC vilken presenterades av Lee (2010). Studien är uförd genom att jämföra modellerna för en uppsättning kända korrelationsprocesser samt för empiriska data. Den empiriska datan inkluderar priset på guld och olja , referensavkastningen på amerikanska statsobligationer med 10 årig löptid samt valutakursen mellan Euro och den amerikanska dollarn under perioden januari 2007 till december 2009. Utöver jämförelsen ges även en allmän beskrivning av svårigheterna med att uppskatta korrelation för att ge läsaren en utökad förståelse av modellernas begränsningar. Resultaten visar att varken DCC eller IS-DCC modellen är bättre än den andra förutom vid snabba korrlationsskiften. För snabba korrelationsskiften visar sig IS-DCC modellen bättre både vad gäller att flagga för dessa skiften som att uppskatta korrelationen. Slutligen rekommenderas ändå att båda dessa modeller används i kombination med en kvalitativ studie i praktiska situationer för att ge en omfattande förståelse av tidsvarierande korrelationsdynamik.

Place, publisher, year, edition, pages
2013.
Series
Trita-MAT-E, 2013:56
National Category
Probability Theory and Statistics
Identifiers
URN: urn:nbn:se:kth:diva-134214OAI: oai:DiVA.org:kth-134214DiVA: diva2:668152
Subject / course
Mathematical Statistics
Supervisors
Examiners
Available from: 2013-11-29 Created: 2013-11-20 Last updated: 2013-11-29Bibliographically approved

Open Access in DiVA

fulltext(974 kB)683 downloads
File information
File name FULLTEXT01.pdfFile size 974 kBChecksum SHA-512
e15cc0547a17e9deb09fc6491774a85a3f9b2bcdd88642102f134508dbe6482f82a041d1ff857f665faa9bee3b14ec4355c8c085102445ad495951b58640b633
Type fulltextMimetype application/pdf

By organisation
Mathematical Statistics
Probability Theory and Statistics

Search outside of DiVA

GoogleGoogle Scholar
Total: 683 downloads
The number of downloads is the sum of all downloads of full texts. It may include eg previous versions that are now no longer available

urn-nbn

Altmetric score

urn-nbn
Total: 183 hits
CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf