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Bayesian smoothing for time-varying extremal dependence

Author

Listed:
  • António Rua
  • Junho Lee
  • Miguel de Carvalho
  • Julio Avila

Abstract

We propose a Bayesian time-varying model that learns about the dynamics governing joint extreme values over time. Our model relies on dual measures of time-varying extremal dependence, that are modelled via a suitable class of generalized linear models conditional on a large threshold. The simulation study indicates that the proposed methods perform well in a variety of scenarios. The application of the proposed methods to some of the world’s most important stock markets reveals complex patterns of extremal dependence over the last 30 years, including passages from asymptotic dependence to asymptotic independence.

Suggested Citation

  • António Rua & Junho Lee & Miguel de Carvalho & Julio Avila, 2024. "Bayesian smoothing for time-varying extremal dependence," Working Papers w202406, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w202406
    as

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    File URL: https://www.bportugal.pt/sites/default/files/documents/2024-04/WP202406.pdf
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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