Variational Bayes Estimation of Discrete-Margined Copula Models with Application to Time Series

Ruben Loaiza-Maya and Michael Smith ()
Authors registered in the RePEc Author Service: Rubén Albeiro Loaiza Maya

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Abstract: We propose a new variational Bayes estimator for high-dimensional copulas with discrete, or a combination of discrete and continuous, margins. The method is based on a variational approximation to a tractable augmented posterior, and is faster than previous likelihood-based approaches. We use it to estimate drawable vine copulas for univariate and multivariate Markov ordinal and mixed time series. These have dimension $rT$, where $T$ is the number of observations and $r$ is the number of series, and are difficult to estimate using previous methods. The vine pair-copulas are carefully selected to allow for heteroskedasticity, which is a feature of most ordinal time series data. When combined with flexible margins, the resulting time series models also allow for other common features of ordinal data, such as zero inflation, multiple modes and under- or over-dispersion. Using six example series, we illustrate both the flexibility of the time series copula models, and the efficacy of the variational Bayes estimator for copulas of up to 792 dimensions and 60 parameters. This far exceeds the size and complexity of copula models for discrete data that can be estimated using previous methods.

Date: 2017-12, Revised 2018-07
New Economics Papers: this item is included in nep-dcm, nep-ecm and nep-ets
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Citations: View citations in EconPapers (1)

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