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Università della Svizzera italiana

Average conditional correlation and tree structures for multivariate GARCH models

Audrino, Francesco ; Barone-Adesi, Giovanni

In: Journal of forecasting, 2006, vol. 25, no. 8, p. 579–600

We propose a simple class of multivariate GARCH models, allowing for time-varying conditional correlations. Estimates for time-varying conditional correlations are constructed by means of a convex combination of averaged correlations (across all series) and dynamic realized (historical) correlations. Our model is very parsimonious. Estimation is computationally feasible in very large dimensions...