Copula Variational LSTM for High-dimensional Cross-market Multivariate Dependence Modeling

• URL: http://arxiv.org/abs/2305.08778v1
• Date: Tue, 9 May 2023 08:19:08 GMT
• Title: Copula Variational LSTM for High-dimensional Cross-market Multivariate Dependence Modeling
• Authors: Jia Xu and Longbing Cao
• Abstract summary: We make the first attempt to integrate variational sequential neural learning with copula-based dependence modeling. Our variational neural network WPVC-VLSTM models variational sequential dependence degrees and structures across time series. It outperforms benchmarks including linear models, volatility models, deep neural networks, and variational recurrent networks in cross-market portfolio forecasting.
• Score: 46.75628526959982
• License: http://arxiv.org/licenses/nonexclusive-distrib/1.0/
• Abstract: We address an important yet challenging problem - modeling high-dimensional dependencies across multivariates such as financial indicators in heterogeneous markets. In reality, a market couples and influences others over time, and the financial variables of a market are also coupled. We make the first attempt to integrate variational sequential neural learning with copula-based dependence modeling to characterize both temporal observable and latent variable-based dependence degrees and structures across non-normal multivariates. Our variational neural network WPVC-VLSTM models variational sequential dependence degrees and structures across multivariate time series by variational long short-term memory networks and regular vine copula. The regular vine copula models nonnormal and long-range distributional couplings across multiple dynamic variables. WPVC-VLSTM is verified in terms of both technical significance and portfolio forecasting performance. It outperforms benchmarks including linear models, stochastic volatility models, deep neural networks, and variational recurrent networks in cross-market portfolio forecasting.

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