Asymmetric heavy-tailed vector auto-regressive processes with application to financial data

By Mohsen Maleki, Darren Wraith, Mohammad Reza Mahmoudi, Javier E. Contreras‐Reyes. Journal of Statistical Computation and Simulation, 2020

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ABSTRACT Vector Auto-regressive (VAR) models are commonly used for modelling multivariate time series and the typical distributional form is to assume a multivariate normal. However, the assumption of Gaussian white noise in multivariate time series is often not reasonable in applications where there are extreme and/or skewed observations. In this setting, inference based on using a Gaussian distributional form will provide misleading results. In this paper, we extended the multivariate setting of autoregressive process, by considering the multivariate scale mixture of skew-normal (SMSN) distributions for VAR innovations. The multivariate SMSN family is able to be represented in a hierarchical form which relatively easily facilitates simulation and an EM-type algorithm to estimate the model parameters. The performance of the proposed model is illustrated by using simulated and real datasets.

Subfields: Finance, Statistics and Probability

View Paper: https://www.semanticscholar.org/paper/9e23cef9a712c1ebd15af3496e37d57af0971187