priorVbeta: Compute the Litterman (Minnesota) prior for the covariance...

In gamalamboy/stresstest: Implement the ETI Stress Testing Simulation

Description

This function creates a Litterman prior covariance matrix for the parameter vector.

Usage

.priorVbeta(data, ztprop1, decay = 2, params = NULL)

Arguments

data	a zoo object.
ztprop1	a Ztprops object containing the model structure.
decay	the type of decay throughout the lag order coefficients in the model. Defaults to \frac{ 1 }{ x^{2} } .
params	a list containing the values of λ, θ, and γ. If NULL, a dataentry interface will open to specify the parameters.

Details

The Litterman (or Minnesota) prior is a diagonal covariance specification with elements defined in the following way:

1. for own lags, use \frac{ λ}{ l^{2} }, where l is the lag order of the coefficient.

2. for lags of other endogenous variables, use θ \frac{ σ_{ii} }{ σ_{jj} } , where i \neq j .

3. for exogenous variables, use γ σ_{k} , where γ lies between 0 and 1.

Value

a matrix with additional class PriorVBeta.

gamalamboy/stresstest documentation built on May 17, 2019, 1:33 p.m.