AI RESEARCH
A Hybrid Gaussian Process Regression Framework for Stable Volatility-Covariance Estimation: Evidence from Global Equity Indices
arXiv CS.LG
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ArXi:2605.17275v1 Announce Type: cross Accurate forecasting of the Volatility-Covariance Matrix (VCV) is central to regulatory capital adequacy processes such as the Internal Capital Adequacy Assessment Process (ICAAP) and the Comprehensive Capital Analysis and Review (CCAR). Traditional econometric models, including GARCH-family and Exponentially Weighted Moving Average (EWMA) approaches, suffer from parametric rigidity, distributional assumptions, and numerical instability under stress, leading to systematic underestimation of tail risk.