Interview Question: Multivariate Volatility Modeling

Sample Question #209 (econometrics – time series)

What’s a diagonal VEC model? What’s its specification?

(Hint: "specification" means what the model looks like mathematically)

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One Response to Interview Question: Multivariate Volatility Modeling

  1. Brett says:

    ANSWER
     
    A diagonal VEC model is a generalized exponentially weighted moving average (EWMA) model for studying volatility in assets. It’s a multivariate model, and can be thought of one way to extend the popular GARCH model to multivariate space.
     
    Its formulation and implementation can be found in Tsay’s excellent time series book.
     

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