Geopolitical Volatility (GEOVOL) Modelling

Simulation, estimation and testing for geopolitical volatility (GEOVOL) based on the global common volatility model of Engle and Campos-Martins (2023) . GEOVOL is modelled as a latent multiplicative volatility factor with heterogeneous factor loadings. Estimation is carried out as a maximization-maximization procedure, where GEOVOL and the GEOVOL loadings are estimated iteratively until convergence.