Applied Flexible Correlation Modeling

Frederik Bauer () and Martin Missong ()
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Frederik Bauer: Bremen University
Martin Missong: Bremen University

Chapter 80 in Operations Research Proceedings 2008, 2009, pp 495-500 from Springer

Abstract: Summary Estimation of correlations of asset returns lies at the core of modern portfolio management. For the seminal Dynamic Conditional Correlation model [1], several generalizations have been proposed recently. In this contribution, we focus on the Flexible Dynamic Conditional Correlation model proposed in [2]. Using both simulation exercises and applications to observed return data, we show that the exible specification performs well only in very restrictive cases, contradicting the “flexibility" of the approach. However, our results indicate that model performance can be improved substantially by a particular adjustment of the variance specification

Date: 2009
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DOI: 10.1007/978-3-642-00142-0_80

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