Giordani, Paolo; Mun, Xiuyan; Kohn, Robert - In: Journal of Financial Econometrics 11 (2012) 1, pp. 154-192
We propose an approach to the regularization of covariance matrices that can be applied to any model for which the likelihood is available in closed form. The approach is based on using mixtures of double exponential or normal distributions as priors for correlation parameters, and on maximizing...