Dynamic Principal Component Analysis of Multivariate Volatility via Fourier Analysis

Maria Elvira Mancino and Roberto Renò

Applied Mathematical Finance, 2005, vol. 12, issue 2, 187-199

Abstract: A method is proposed to compute a time-varying correlation matrix between asset prices. The method has a natural geometric interpretation in terms of dynamic principal components analysis. The paper illustrates, via Monte Carlo experiments and data analysis, the potential of the method in computing cross-correlations; and it describes market integration, introducing the concept of reference asset.

Keywords: Cross-volatilities; Fourier series; dynamic principal component analysis (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1080/1350486042000255861

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