A component model for dynamic correlations

The idea of component models for volatility is extended to dynamic correlations. We propose a model of dynamic correlations with a short- and long-run component specification. We call this class of models DCC-MIDAS as the key ingredients are a combination of the Engle (2002) DCC model, the Engle and Lee (1999) component GARCH model to replace the original DCC dynamics with a component specification and the Engle, Ghysels, and Sohn (2006) GARCH-MIDAS component specification that allows us to extract a long-run correlation component via mixed data sampling. We provide a comprehensive econometric analysis of the new class of models, including conditions for positive semi-definiteness, and provide extensive empirical evidence that supports the model specification

Term structure of risk, the role of Known and Unknown Risks and Non-stationary Distributions

In this paper we document the presence of a term structure of risk and we propose how to measure it using alternative models to forecast volatility and the Value at Risk at different horizons. We then quantify the benefits of an investor that is aware of the existence of a term structure of risk in the context of an asset allocation exercise

Ten Things You Should Know About the Dynamic Conditional Correlation Representation

The purpose of the paper is to discuss ten things potential users should know about the limits of the Dynamic Conditional Correlation (DCC) representation for estimating and forecasting time-varying conditional correlations. The reasons given for caution about the use of DCC include the following: DCC represents the dynamic conditional covariances of the standardized residuals, and hence does not yield dynamic conditional correlations; DCC is stated rather than derived; DCC has no moments; DCC does not have testable regularity conditions; DCC yields inconsistent two step estimators; DCC has no asymptotic properties; DCC is not a special case of GARCC, which has testable regularity conditions and standard asymptotic properties; DCC is not dynamic empirically as the effect of news is typically extremely small; DCC cannot be distinguished empirically from diagonal BEKK in small systems; and DCC may be a useful filter or a diagnostic check, but it is not a model

Order, algebra, and structure: lattice-ordered groups and beyond

This thesis describes and examines some remarkable relationships existing between seemingly quite different properties (algebraic, order-theoretic, and structural) of ordered groups. On the one hand, it revisits the foundational aspects of the structure theory of lattice-ordered groups, contributing a novel systematization of its relationship with the theory of orderable groups. One of the main contributions in this direction is a connection between validity in varieties of lattice-ordered groups, and orders on groups; a framework is also provided that allows for a systematic account of the relationship between orders and preorders on groups, and the structure theory of lattice-ordered groups. On the other hand, it branches off in new directions, probing the frontiers of several different areas of current research. More specifically, one of the main goals of this thesis is to suitably extend results that are proper to the theory of lattice-ordered groups to the realm of more general, related algebraic structures; namely, distributive lattice-ordered monoids and residuated lattices. The theory of lattice-ordered groups provides themain source of inspiration for this thesis’ contributions on these topics

Proof Theory for Positive Logic with Weak Negation

Proof-theoretic methods are developed for subsystems of Johansson's logic obtained by extending the positive fragment of intuitionistic logic with weak negations. These methods are exploited to establish properties of the logical systems. In particular, cut-free complete sequent calculi are introduced and used to provide a proof of the fact that the systems satisfy the Craig interpolation property. Alternative versions of the calculi are later obtained by means of an appropriate loop-checking history mechanism. Termination of the new calculi is proved, and used to conclude that the considered logical systems are PSPACE-complete

Long memory conditional volatility and asset allocation

Pre-print version dated May 2011 issued as Discussion paper by University of Exeter. A definitive version was subsequently published in International Journal of Forecasting Volume 29, Issue 2, April–June 2013, Pages 258–273. Available online at http://www.sciencedirect.com/In this paper, we evaluate the economic benefits that arise from allowing for long memory when forecasting the covariance matrix of returns over both short and long horizons, using the asset allocation framework of Engle and Colacito (2006) In particular, we compare the statistical and economic performances of four multivariate long memory volatility models (the long memory EWMA, long memory EWMA–DCC, FIGARCH-DCC and component GARCH-DCC models) with those of two short memory models (the short memory EWMA and GARCH-DCC models). We report two main findings. First, for longer horizon forecasts, long memory models generally produce forecasts of the covariance matrix that are statistically more accurate and informative, and economically more useful than those produced by short memory models. Second, the two parsimonious long memory EWMA models outperform the other models–both short and long memory–across most forecast horizons. These results apply to both low and high dimensional covariance matrices and both low and high correlation assets, and are robust to the choice of the estimation window

Theorems of Alternatives for Substructural Logics

A theorem of alternatives provides a reduction of validity in a substructural logic to validity in its multiplicative fragment. Notable examples include a theorem of Arnon Avron that reduces the validity of a disjunction of multiplicative formulas in the R-mingle logic RM to the validity of a linear combination of these formulas, and Gordan's theorem for solutions of linear systems over the real numbers, that yields an analogous reduction for validity in Abelian logic A. In this paper, general conditions are provided for axiomatic extensions of involutive uninorm logic without additive constants to admit a theorem of alternatives. It is also shown that a theorem of alternatives for a logic can be used to establish (uniform) deductive interpolation and completeness with respect to a class of dense totally ordered residuated lattices