arXiv subjects

Lea Petrella

Publications and source records attributed to Lea Petrella.

At least 19 recordsLinked to original sources

arXiv2024

Hidden Markov graphical models with state-dependent generalized hyperbolic distributions

In this paper we develop a novel hidden Markov graphical model to investigate time-varying interconnectedness between different financial markets. To identify conditional correlation structures under varying market conditions and accommodate stylized facts embedded in financial time series, we rely upon the generalized hyperbolic family of distributions with time-dependent parameters evolving according to a latent Markov chain. We exploit its location-scale mixture representation to build a penalized EM algorithm for estimating the state-specific sparse precision matrices by means of an $L_1$ penalty. The proposed approach leads to regime-specific conditional correlation graphs that allow us to identify different degrees of network connectivity of returns over time. The methodology's effectiveness is validated through simulation exercises under different scenarios. In the empirical analysis we apply our model to daily returns of a large set of market indexes, cryptocurrencies and commodity futures over the period 2017-2023.

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arXiv2024

Bayesian Dynamic Quantile Model Averaging

This article introduces a novel dynamic framework to Bayesian model averaging for time-varying parameter quantile regressions. By employing sequential Markov chain Monte Carlo, we combine empirical estimates derived from dynamically chosen quantile regressions, thereby facilitating a comprehensive understanding of the quantile model instabilities. The effectiveness of our methodology is initially validated through the examination of simulated datasets and, subsequently, by two applications to the US inflation rates and to the US real estate market. Our empirical findings suggest that a more intricate and nuanced analysis is needed when examining different sub-period regimes, since the determinants of inflation and real estate prices are clearly shown to be time-varying. In conclusion, we suggest that our proposed approach could offer valuable insights to aid decision making in a rapidly changing environment.

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arXiv2024

Expectile hidden Markov regression models for analyzing cryptocurrency returns

In this paper we develop a linear expectile hidden Markov model for the analysis of cryptocurrency time series in a risk management framework. The methodology proposed allows to focus on extreme returns and describe their temporal evolution by introducing in the model time-dependent coefficients evolving according to a latent discrete homogeneous Markov chain. As it is often used in the expectile literature, estimation of the model parameters is based on the asymmetric normal distribution. Maximum likelihood estimates are obtained via an Expectation-Maximization algorithm using efficient M-step update formulas for all parameters. We evaluate the introduced method with both artificial data under several experimental settings and real data investigating the relationship between daily Bitcoin returns and major world market indices.

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arXiv2023

Quantile mixed graphical models with an application to mass public shootings in the United States

Over the last fifty years, the United States have experienced hundreds of mass public shootings that resulted in thousands of victims. Characterized by their frequent occurrence and devastating nature, mass shootings have become a major public health hazard that dramatically impact safety and well-being of individuals and communities. Given the epidemic traits of this phenomenon, there have been concerted efforts to understand the root causes that lead to public mass shootings in order to implement effective prevention strategies. We propose a quantile mixed graphical model for investigating the intricacies of inter- and infra-domain relationships of this complex phenomenon, where conditional relations between discrete and continuous variables are modeled without stringent distributional assumptions using Parzen's definition of mid-quantile. To retrieve the graph structure and recover only the most relevant connections, we consider the neighborhood selection approach in which conditional mid-quantiles of each variable in the network are modeled as a sparse function of all others. We propose a two-step procedure to estimate the graph where, in the first step, conditional mid-probabilities are obtained semi-parametrically and, in the second step, the model parameters are estimated by solving an implicit equation with a LASSO penalty.

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arXiv2023

Estimating causal quantile exposure response functions via matching

We develop new matching estimators for estimating causal quantile exposure-response functions and quantile exposure effects with continuous treatments. We provide identification results for the parameters of interest and establish the asymptotic properties of the derived estimators. We introduce a two-step estimation procedure. In the first step, we construct a matched data set via generalized propensity score matching, adjusting for measured confounding. In the second step, we fit a kernel quantile regression to the matched set. We also derive a consistent estimator of the variance of the matching estimators. Using simulation studies, we compare the introduced approach with existing alternatives in various settings. We apply the proposed method to Medicare claims data for the period 2012-2014, and we estimate the causal effect of exposure to PM$_{2.5}$ on the length of hospital stay for each zip code of the contiguous United States.

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arXiv2023

Unified unconditional regression for multivariate quantiles, M-quantiles and expectiles

In this paper, we develop a unified regression approach to model unconditional quantiles, M-quantiles and expectiles of multivariate dependent variables exploiting the multidimensional Huber's function. To assess the impact of changes in the covariates across the entire unconditional distribution of the responses, we extend the work of Firpo et al. (2009) by running a mean regression of the recentered influence function on the explanatory variables. We discuss the estimation procedure and establish the asymptotic properties of the derived estimators. A data-driven procedure is also presented to select the tuning constant of the Huber's function. The validity of the proposed methodology is explored with simulation studies and through an application using the Survey of Household Income and Wealth 2016 conducted by the Bank of Italy.

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arXiv2023

Quantile and expectile copula-based hidden Markov regression models for the analysis of the cryptocurrency market

The role of cryptocurrencies within the financial systems has been expanding rapidly in recent years among investors and institutions. It is therefore crucial to investigate the phenomena and develop statistical methods able to capture their interrelationships, the links with other global systems, and, at the same time, the serial heterogeneity. For these reasons, this paper introduces hidden Markov regression models for jointly estimating quantiles and expectiles of cryptocurrency returns using regime-switching copulas. The proposed approach allows us to focus on extreme returns and describe their temporal evolution by introducing time-dependent coefficients evolving according to a latent Markov chain. Moreover to model their time-varying dependence structure, we consider elliptical copula functions defined by state-specific parameters. Maximum likelihood estimates are obtained via an Expectation-Maximization algorithm. The empirical analysis investigates the relationship between daily returns of five cryptocurrencies and major world market indices.

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arXiv2023

Mixed--frequency quantile regressions to forecast Value--at--Risk and Expected Shortfall

Although quantile regression to calculate risk measures has been widely established in the financial literature, when considering data observed at mixed--frequency, an extension is needed. In this paper, a model is suggested built on a mixed--frequency quantile regression to directly estimate the Value--at--Risk (VaR) and the Expected Shortfall (ES) measures. In particular, the low--frequency component incorporates information coming from variables observed at, typically, monthly or lower frequencies, while the high--frequency component can include a variety of daily variables, like market indices or realized volatility measures. The conditions for the weak stationarity of the daily return process are derived and the finite sample properties are investigated in an extensive Monte Carlo exercise. The validity of the proposed model is then explored through a real data application using two energy commodities, namely, Crude Oil and Gasoline futures. Results show that our model outperforms other competing specifications, on the basis of some popular VaR and ES backtesting test procedures.

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arXiv2022

Inter-order relations between moments of a Student $t$ distribution, with an application to $L_p$-quantiles

This paper introduces inter-order formulas for partial and complete moments of a Student $t$ distribution with $n$ degrees of freedom. We show how the partial moment of order $n - j$ about any real value $m$ can be expressed in terms of the partial moment of order $j - 1$ for $j$ in $\{1,\dots, n \}$. Closed form expressions for the complete moments are also established. We then focus on $L_p$-quantiles, which represent a class of generalized quantiles defined through an asymmetric $p$-power loss function. Based on the results obtained, we also show that for a Student $t$ distribution the $L_{n-j+1}$-quantile and the $L_j$-quantile coincide at any confidence level $τ$ in $(0, 1)$.

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arXiv2021

Quantile Mixed Hidden Markov Models for multivariate longitudinal data

The identification of factors associated with mental and behavioral disorders in early childhood is critical both for psychopathology research and the support of primary health care practices. Motivated by the Millennium Cohort Study, in this paper we study the effect of a comprehensive set of covariates on children's emotional and behavioural trajectories in England. To this end, we develop a Quantile Mixed Hidden Markov Model for joint estimation of multiple quantiles in a linear regression setting for multivariate longitudinal data. The novelty of the proposed approach is based on the Multivariate Asymmetric Laplace distribution which allows to jointly estimate the quantiles of the univariate conditional distributions of a multivariate response, accounting for possible correlation between the outcomes. Sources of unobserved heterogeneity and serial dependency due to repeated measures are modeled through the introduction of individual-specific, time-constant random coefficients and time-varying parameters evolving over time with a Markovian structure, respectively. The inferential approach is carried out through the construction of a suitable Expectation-Maximization algorithm without parametric assumptions on the random effects distribution.

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arXiv2021

Forecasting VaR and ES using a joint quantile regression and implications in portfolio allocation

In this paper we propose a multivariate quantile regression framework to forecast Value at Risk (VaR) and Expected Shortfall (ES) of multiple financial assets simultaneously, extending Taylor (2019). We generalize the Multivariate Asymmetric Laplace (MAL) joint quantile regression of Petrella and Raponi (2019) to a time-varying setting, which allows us to specify a dynamic process for the evolution of both VaR and ES of each asset. The proposed methodology accounts for the dependence structure among asset returns. By exploiting the properties of the MAL distribution, we then propose a new portfolio optimization method that minimizes the portfolio risk and controls for well-known characteristics of financial data. We evaluate the advantages of the proposed approach on both simulated and real data, using weekly returns on three major stock market indices. We show that our method outperforms other existing models and provides more accurate risk measure forecasts compared to univariate ones.

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arXiv2020

A two-part finite mixture quantile regression model for semi-continuous longitudinal data

This paper develops a two-part finite mixture quantile regression model for semi-continuous longitudinal data. The proposed methodology allows heterogeneity sources that influence the model for the binary response variable, to influence also the distribution of the positive outcomes. As is common in the quantile regression literature, estimation and inference on the model parameters are based on the Asymmetric Laplace distribution. Maximum likelihood estimates are obtained through the EM algorithm without parametric assumptions on the random effects distribution. In addition, a penalized version of the EM algorithm is presented to tackle the problem of variable selection. The proposed statistical method is applied to the well-known RAND Health Insurance Experiment dataset which gives further insights on its empirical behavior.

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arXiv2019

Unified Bayesian Conditional Autoregressive Risk Measures using the Skew Exponential Power Distribution

Conditional Autoregressive Value-at-Risk and Conditional Autoregressive Expectile have become two popular approaches for direct measurement of market risk. Since their introduction several improvements both in the Bayesian and in the classical framework have been proposed to better account for asymmetry and local non-linearity. Here we propose a unified Bayesian Conditional Autoregressive Risk Measures approach by using the Skew Exponential Power distribution. Further, we extend the proposed models using a semiparametric P-spline approximation answering for a flexible way to consider the presence of non-linearity. To make the statistical inference we adapt the MCMC algorithm proposed in Bernardi et al. (2018) to our case. The effectiveness of the whole approach is demonstrated using real data on daily return of five stock market indices.

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arXiv2018

Large deviations for method-of-quantiles estimators of one-dimensional parameters

We consider method-of-quantiles estimators of unknown parameters, namely the analogue of method-of-moments estimators obtained by matching empirical and theoretical quantiles at some probability level lambda in (0,1). The aim is to present large deviation results for these estimators as the sample size tends to infinity. We study in detail several examples; for specific models we discuss the choice of the optimal value of lambda and we compare the convergence of the method-of-quantiles and method-of-moments estimators.

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arXiv2018

Joint estimation of conditional quantiles in multivariate linear regression models. An application to financial distress

This paper proposes a maximum-likelihood approach to jointly estimate marginal conditional quantiles of multivariate response variables in a linear regression framework. We consider a slight reparameterization of the Multivariate Asymmetric Laplace distribution proposed by Kotz et al (2001) and exploit its location-scale mixture representation to implement a new EM algorithm for estimating model parameters. The idea is to extend the link between the Asymmetric Laplace distribution and the well-known univariate quantile regression model to a multivariate context, i.e. when a multivariate dependent variable is concerned. The approach accounts for association among multiple responses and study how the relationship between responses and explanatory variables can vary across different quantiles of the marginal conditional distribution of the responses. A penalized version of the EM algorithm is also presented to tackle the problem of variable selection. The validity of our approach is analyzed in a simulation study, where we also provide evidence on the efficiency gain of the proposed method compared to estimation obtained by separate univariate quantile regressions. A real data application is finally proposed to study the main determinants of financial distress in a sample of Italian firms.

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arXiv2018

Large deviations for risk measures in finite mixture models

Due to their heterogeneity, insurance risks can be properly described as a mixture of different fixed models, where the weights assigned to each model may be estimated empirically from a sample of available data. If a risk measure is evaluated on the estimated mixture instead of the (unknown) true one, then it is important to investigate the committed error. In this paper we study the asymptotic behaviour of estimated risk measures, as the data sample size tends to infinity, in the fashion of large deviations. We obtain large deviation results by applying the contraction principle, and the rate functions are given by a suitable variational formula; explicit expressions are available for mixtures of two models. Finally, our results are applied to the most common risk measures, namely the quantiles, the Expected Shortfall and the shortfall risk measures.

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arXiv2017

The Sparse Multivariate Method of Simulated Quantiles

In this paper the method of simulated quantiles (MSQ) of Dominicy and Veredas (2013) and Dominick et al. (2013) is extended to a general multivariate framework (MMSQ) and to provide a sparse estimator of the scale matrix (sparse-MMSQ). The MSQ, like alternative likelihood-free procedures, is based on the minimisation of the distance between appropriate statistics evaluated on the true and synthetic data simulated from the postulated model. Those statistics are functions of the quantiles providing an effective way to deal with distributions that do not admit moments of any order like the $α$-Stable or the Tukey lambda distribution. The lack of a natural ordering represents the major challenge for the extension of the method to the multivariate framework. Here, we rely on the notion of projectional quantile recently introduced by Hallin etal. (2010) and Kong Mizera (2012). We establish consistency and asymptotic normality of the proposed estimator. The smoothly clipped absolute deviation (SCAD) $\ell_1$--penalty of Fan and Li (2001) is then introduced into the MMSQ objective function in order to achieve sparse estimation of the scaling matrix which is the major responsible for the curse of dimensionality problem. We extend the asymptotic theory and we show that the sparse-MMSQ estimator enjoys the oracle properties under mild regularity conditions. The method is illustrated and its effectiveness is tested using several synthetic datasets simulated from the Elliptical Stable distribution (ESD) for which alternative methods are recognised to perform poorly. The method is then applied to build a new network-based systemic risk measurement framework. The proposed methodology to build the network relies on a new systemic risk measure and on a parametric test of statistical dominance.

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arXiv2016

On the Lp-quantiles for the Student t distribution

L_p-quantiles represent an important class of generalised quantiles and are defined as the minimisers of an expected asymmetric power function, see Chen (1996). For p=1 and p=2 they correspond respectively to the quantiles and the expectiles. In his paper Koenker (1993) showed that the tau quantile and the tau expectile coincide for every tau in (0,1) for a class of rescaled Student t distributions with two degrees of freedom. Here, we extend this result proving that for the Student t distribution with p degrees of freedom, the tau quantile and the tau L_p-quantile coincide for every tau in (0,1) and the same holds for any affine transformation. Furthermore, we investigate the properties of L_p-quantiles and provide recursive equations for the truncated moments of the Student t distribution.

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