The rapid growth of the credit risk transfer market during recent years led to a paradigm shift in banking. Increasingly, the traditional “buy–and–hold” model of banking is transformed into a model where banks take an active approach to managing and trading credit risk exposures. Central to this process is the development of sophisticated credit risk transfer techniques, which allow banks to manage credit risk exposures in a more versatile manner.
The rapid growth of the credit derivatives market is particularly striking. In the US, for example, commercial banks’ credit derivative positions increased 15–fold over the period 1997 to 2003 (second quarter, Office of the Comptroller of the Currency 2003). Table 1 documents global credit derivative positions as of September 2003 (survey among 181 market participants).
People are shocked, at the beginning of my seminars, when one of the first things I tell them is “Don’t believe a word I say.” Why would I suggest that? Because I can only speak from my own experience. None of the concepts and insights I share are inherently true or false, right or wrong. They simply reflect my own results, and the amazing results I’ve seen in the lives of thousands and thousands of my students. Having said that, however, I believe that if you use the principles you learn in this book, you will totally transform your life. Don’t just read this book. Study it as if your life depended on it. Then try the principles out for yourself. Whatever works, keep doing. Whatever doesn’t, you’re welcome to throw away.
I know I may be biased, but when it comes to money, this may be the most important book you have ever read. I understand that’s a bold statement, but the fact is, this book provides the missing link between your desire for success and your achievement of success. As you’ve probably found out by now, those are two different worlds.
Multivariate volatility models (MVM) are used for asset pricing, portfolio selection, option pricing, hedging and risk management, see e.g. Bauwens et al. (2006). MVM include multivariate GARCH specifications (MGARCH, see the reviews in McAleer 2005, Bauwens et al. 2006, Silvennoinen and Teräsvirta 2008 and the glossary in Bollerslev 2008), Multivariate Stochastic Volatility models (MSV, see e.g. Asai, McAleer and Yu 2006), and Multivariate Realized Covariance models (MRV, see e.g. McAleer and Medeiros 2008).
A major challenge in MVM is the rapid increase of number of parameters as the cross sectional dimension increases. Large cross§ions would be of interest in typical applications of MVM; this contrasts with the empirical practice, where these models are estimated in just a handful of dimensions or ronly for very restrictive specifications rin medium sized cross sections.
