DOAJ Open Access 2024

A novel robust method for estimating the covariance matrix of financial returns with applications to risk management

Arturo Leccadito Alessandro Staino Pietro Toscano

Abstrak

Abstract This study introduces the dynamic Gerber model (DGC) and evaluates its performance in the prediction of Value at Risk (VaR) and Expected Shortfall (ES) compared to alternative parametric, non-parametric and semi-parametric methods for estimating the covariance matrix of returns. Based on ES backtests, the DGC method produces, overall, accurate ES forecasts. Furthermore, we use the Model Confidence Set procedure to identify the superior set of models (SSM). For all the portfolios and VaR/ES confidence levels we consider, the DGC is found to belong to the SSM.

Topik & Kata Kunci

Public finance Finance

Penulis (3)

Arturo Leccadito

Alessandro Staino

Pietro Toscano

Format Sitasi

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Leccadito, A., Staino, A., Toscano, P. (2024). A novel robust method for estimating the covariance matrix of financial returns with applications to risk management. https://doi.org/10.1186/s40854-024-00642-2

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Informasi Jurnal

Tahun Terbit: 2024
Sumber Database: DOAJ
DOI: 10.1186/s40854-024-00642-2
Akses: Open Access ✓