Engle outline

Econometric Institute and Princeton University Pressorganize the intensive PhD-course:

"Multivariate Volatility Modelling with Dynamic Correlations"

Prof. R.F. Engle (Stern School of Business, New York University)

May 21-23, 2003
Erasmus University Rotterdam

Course Outline

1. Introduction to volatility modelling and univariate GARCH models (van Dijk)

  • Univariate GARCH and stochastic volatility models
  • Testing for GARCH effects
  • Estimation, diagnostic checking, forecasting

2.  Introduction to multivariate GARCH models (Engle)

  • Survey of the multivariate GARCH literature
  • Introduction of the Dynamic Conditional Correlation (DCC) model
  • Specifications allowing downside risk

3. The Econometrics of the DCC Estimator (Engle)

  • Standard errors
  • Variance targeting
  • Diagnostic testing
  • Monte Carlo evidence
  • Empirical results

4. Alternative models for time-varying correlations (Martens)

  • Sample covariances matrix with equal or exponentially declining weigths
  • Factor models, including estimating the factor returns using a Principal Component Analysis, using observable factors, and using observable factor exposures to estimate unobservable factor returns.
  • Theoretical (dis)advantages of eacht model and empirical comparisons

5.  A Factor Model (Engle)

  • Formulation of factor model with unobservable factor returns
  • Attribute of individual assets
  • Empirical results
  • Applications to portfolio construction and dynamic hedging