Composite Univariate Modeling of Realized Covariance Matrix Dynamics and Volatility-at-Risk

Justus Holman, Andre Lucas and Anne Opschoor
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Justus Holman: Vrije Universiteit Amsterdam
Andre Lucas: Vrije Universiteit Amsterdam
Anne Opschoor: Vrije Universiteit Amsterdam

No 26-061/III, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We propose a new model for realized covariance matrix dynamics using a composite of univariate time series models for its realized eigenvalues, linked by a copula function. The dynamics of each eigenvalue are based on a conditional F distribution, thus allowing for fat-tailedness and outliers in the realized covariance matrices. Given its composition from univariate elements, the static parameters of the new model can be estimated efficiently by maximum likelihood. In an empirical application, we show that the new model outperforms relevant recent benchmarks in an extensive portfolio (Conditional) Volatility-at-Risk (VolaR) application.

JEL-codes: C22 C32 C58 (search for similar items in EconPapers)
Date: 2026-08-28
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