[R-SIG-Finance] Singular matrix in DCC fit in package rmgarch | how to bypass base::solve() elegantly

[alexios galanos]

Hi Peter,

I'm not sure whether switching to generalized inverse will be a sensible 
or feasible approach in a DCC situation when p>n. The underlying code 
makes use of RcppArmadillo and you could try to switch out inv with pinv...

However, perhaps a more reasonable approach would be to:

1. Use a factor model (e.g. GO-GARCH)
2. Regularization/Shrinkage, but these have not been implemented in 
rmgarch, and I haven't looked at the literature recently to see what 
approaches and models have been proposed


Best,

Alexios

On 4/9/20 6:06 AM, Peter Ruckdeschel wrote:
> Dear Alexis,  dear colleagues,
> 
> a student of mine, Patrick Harren (CC), is currently writing his master thesis with me as advisor.
> 
> He is to write on portfolio optimization for many assets by means of dynamic elliptical copulas
> using a DCC-GARCH model as implemented in R package rmgarch.
> 
> In his code he is stumbling on errors of form
> 
>      "error: matrix multiplication: problem with matrix inverse; suggest to use solve() instead"
> 
> I am not surprised this happens, as he has a p>n situation, i.e. more assets than observations,
> so I would guess this is due to singular matrices which at some point of the code is to be inverted.
> 
> Is there any [easy] way to replace the general solver base::solve() by something like MASS::ginv()
> for this purpose, or, if appropriate, would you suggest another regularization, say by some sort of
> shrinkage?
> 
> Any suggestions welcome, thank you already,
> 
> best regards, Peter Ruckdeschel
> 
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