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Estimating factor models for multivariate volatilities : an innovation expansion method

Pan, Jiazhu and Polonik, Wolfgang and Yao, Qiwei (2010) Estimating factor models for multivariate volatilities : an innovation expansion method. In: Proceedings of COMPSTAT 2010. A Physica Verlag Heidelberg product . Springer, pp. 305-314. ISBN 978-3-7908-2603-6

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Abstract

We introduce an innovation expansion method for estimation of factor models for conditional variance (volatility) of a multivariate time series.We estimate the factor loading space and the number of factors by a stepwise optimization algorithm on expanding the "white noise space". Simulation and a real data example are given for illustration.