How do I calculate or estimate the degrees of freedom in order to perform a Monte Carlo simulation of asset returns with multivariate t distribution using R functions? I am able to calculate the mean vector of asset returns
mu, as well as the covariance matrix
covmat of asset returns.
I also understand that
Sigma is the scale matrix which is
covmat * df/(df-2)
library(mvtnorm) sim <- rep(mu, each = n) + rmvt(n, sigma=Sigma, df=df) #df is degrees of freedom, which is a required input in the function rmvt and required to calculate the scale matrix