Bayesian Covariance Matrix Estimation using a Mixture of Decomposable Graphical Models

Estimating a covariance matrix efficiently and discovering its structure are important statistical problems with applications in many fields. This article takes a Bayesian approach to estimate the covariance matrix of Gaussian data. We use ideas from Gaussian graphical models and model selection to construct a prior for the covariance matrix that is a mixture over all decomposable graphs, where a graph means the configuration of nonzero offdiagonal elements in the inverse of the covariance matrix. Our prior for the covariance matrix is such that the probability of each graph size is specified by the user and graphs of equal size are assigned equal probability. Most previous approaches assume that all graphs are equally probable. We give empirical results that show the prior that assigns equal probability over graph sizes outperforms the prior that assigns equal probability over all graphs, both in identifying the correct decomposable graph and in more efficiently estimating the covariance matrix. The advantage is greatest when the number of observations is small relative to the dimension of the covariance matrix. The article also shows empirically that there is minimal change in statistical efficiency in using the mixture over decomposable graphs prior for estimating a general covariance compared to the Bayesian estimator by Wong et al. (2003), even when the graph of the covariance matrix is nondecomposable. However, our approach has some important advantages over that of Wong et al. (2003). Our method requires the number of decomposable graphs for each graph size. We show how to estimate these numbers using simulation and that the simulation results agree with analytic results when such results are known. We also show how to estimate the posterior distribution of the covariance matrix using Markov chain Monte Carlo with the elements of the covariance matrix integrated out and give empirical results that show the sampler is computationally efficient and converges rapidly. Finally, we note that both the prior and the simulation method to evaluate the prior apply generally to any decomposable graphical model.