Tid: 25 oktober 2013 kl 10.15-11.00.Seminarierummet 3721, Institutionen för matematik, KTH, Lindstedts väg 25, plan 7. Karta!
Föredragshållare: Kristoffer Stenberg och Henrik Wikerman
Titel: Evaluating Regime Switching in Dynamic Conditional Correlation (Examensarbete - Master thesis).
Abstract 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.
|Sidansvarig: Filip Lindskog