Dynamic Conditional Correlation a Simple Class of Multivariate GARCH Models
27 Pages Posted: 4 Nov 2008
Date Written: May 2000
Time varying correlations are often estimated with Multivariate Garch models that are linear in squares and cross products of returns. A new class of multivariate models called dynamic conditional correlation (DCC) models is proposed. These have the flexibility of univariate GARCH models coupled1 with parsimonious parametric models for the correlations. They are not linear but can often be estimated very simply with univariate or two step methods based on thelikelihood function. It is shown that they perform well in a variety of situationsand give sensible empirical results.
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