Abstract
Volatility modelling of asset returns is an important aspect for many financial applications, e.g., option pricing and risk management. GARCH models are usually used to model the volatility processes of financial time series. However, multivariate GARCH modelling of volatilities is still a challenge due to the complexity of parameters estimation. To solve this problem, we suggest using Independent Component Analysis (ICA) for transforming the multivariate time series into statistically independent time series. Then, we propose the ICA-GARCH model which is computationally efficient to estimate the volatilities. The experimental results show that this method is more effective to model multivariate time series than existing methods, e.g., PCA-GARCH.
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© 2005 Springer-Verlag Berlin Heidelberg
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Wu, E.H.C., Yu, P.L.H. (2005). Volatility Modelling of Multivariate Financial Time Series by Using ICA-GARCH Models. In: Gallagher, M., Hogan, J.P., Maire, F. (eds) Intelligent Data Engineering and Automated Learning - IDEAL 2005. IDEAL 2005. Lecture Notes in Computer Science, vol 3578. Springer, Berlin, Heidelberg. https://doi.org/10.1007/11508069_74
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DOI: https://doi.org/10.1007/11508069_74
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-540-26972-4
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