Bayesian Optimal Portfolio Selection in the MSF-SBEKK Model

Abstract

The aim of this paper is to investigate the predictive properties of the MSF-Scalar BEKK(1,1) model in context of portfolio optimization. The MSF-SBEKK model has been proposed as a feasible tool for analyzing multidimensional financial data (large n), but this research examines forecasting abilities of this model for n = 2, since for bivariate data we can obtain and compare predictive distributions of the portfolio in many other multivariate SV specifications. Also, approximate posterior results in the MSF-SBEKK model (based on preliminary estimates of nuisance matrix parameters) are compared with the exact ones.