Convolution-t Distributions

Peter Hansen and Chen Tong

Papers from arXiv.org

Abstract: We introduce a new class of multivariate heavy-tailed distributions that are convolutions of heterogeneous multivariate t-distributions. Unlike commonly used heavy-tailed distributions, the multivariate convolution-t distributions embody cluster structures with flexible nonlinear dependencies and heterogeneous marginal distributions. Importantly, convolution-t distributions have simple density functions that facilitate estimation and likelihood-based inference. The characteristic features of convolution-t distributions are found to be important in an empirical analysis of realized volatility measures and help identify their underlying factor structure.

Date: 2024-03
New Economics Papers: this item is included in nep-ecm and nep-ets
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