Modeling Multivariate Positive-Valued Time Series Using R-INLA

Abstract

In this paper we describe fast Bayesian statistical analysis of vector positive-valued time series, with application to interesting financial data streams. We discuss a flexible level correlated model (LCM) framework for building hierarchical models for vector positive-valued time series. The LCM allows us to combine marginal gamma distributions for the positive-valued component responses, while accounting for association among the components at a latent level. We use integrated nested Laplace approximation (INLA) for fast approximate Bayesian modeling via the R-INLA package, building custom functions to handle this setup. We use the proposed method to model interdependencies between realized volatility measures from several stock indexes.

19 pages, 1 figure