A novel financial risk contagion model based on the MGARCH process and its parameter estimation

Abstract

This paper proposes a new financial risk contagion model; the contagion-MGARCH model which is based on the multivariate GARCH process. Our measure of risk contagion could characterize the causality of the financial risk contagion, its economic significance, and its determinants by using the contagion equation containing latent variables. Markov Chain Monte Carlo (MCMC) estimation of the parameters in the new contagion model context is also covered. Key words: Financial risk contagion, MGARCH, latent variable.