garch
Fit GARCH Models to Time Series
Fit a Generalized Autoregressive Conditional Heteroscedastic GARCH(p, q) time series model to the data by computing the maximum-likelihood estimates of the conditionally normal model.
- Keywords
- ts
Usage
garch(x, order = c(1, 1), coef = NULL, itmax = 200, eps = NULL,
grad = c("analytical","numerical"), series = NULL,
trace = TRUE, ...)
Arguments
- x
- a numeric vector or time series.
- order
- a two dimensional integer vector giving the orders of the
model to fit.
order[2]
corresponds to the ARCH part andorder[1]
to the GARCH part. - coef
- If given this numeric vector is used as the initial estimate of the GARCH coefficients. Default initialization is to set the GARCH parameters to slightly positive values and to initialize the intercept such that the unconditional variance of
- itmax
- gives the maximum number of log-likelihood function
evaluations
itmax
and the maximum number of iterations2*itmax
the optimizer is allowed to compute. - eps
- defines the absolute (
max(1e-20, eps^2)
) and relative function convergence tolerance (max(1e-10, eps^(2/3))
), the coefficient-convergence tolerance (sqrt(eps)
), and the false convergence tolerance ( - grad
- indicates if the analytical gradient or a numerical approximation is used for the optimization.
- series
- name for the series. Defaults to
deparse(substitute(x))
. - trace
- trace optimizer output?
- ...
- additional arguments for
qr
when computing the asymptotic standard errors ofcoef
.
Details
garch
uses a Quasi-Newton optimizer to find the maximum
likelihood estimates of the conditionally normal model. The first
max(p, q) values are assumed to be fixed. The optimizer uses a hessian
approximation computed from the BFGS update. Only a Cholesky factor
of the Hessian approximation is stored. For more details see Dennis
et al. (1981), Dennis and Mei (1979), Dennis and More (1977), and
Goldfarb (1976). The gradient is either computed analytically or
using a numerical approximation.
Value
- A list of class
"garch"
with the following elements: order the order of the fitted model. coef estimated GARCH coefficients for the fitted model. n.likeli the negative log-likelihood function evaluated at the coefficient estimates (apart from some constant). n.used the number of observations of x
.residuals the series of residuals. fitted.values the bivariate series of conditional standard deviation predictions for x
.series the name of the series x
.frequency the frequency of the series x
.call the call of the garch
function.asy.se.coef the asymptotic-theory standard errors of the coefficient estimates.
References
A. K. Bera and M. L. Higgins (1993): ARCH Models: Properties, Estimation and Testing. J. Economic Surveys 7 305--362. T. Bollerslev (1986): Generalized Autoregressive Conditional Heteroscedasticity. Journal of Econometrics 31, 307--327.
R. F. Engle (1982): Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation. Econometrica 50, 987--1008.
J. E. Dennis, D. M. Gay, and R. E. Welsch (1981): Algorithm 573 --- An Adaptive Nonlinear Least-Squares Algorithm. ACM Transactions on Mathematical Software 7, 369--383.
J. E. Dennis and H. H. W. Mei (1979): Two New Unconstrained Optimization Algorithms which use Function and Gradient Values. J. Optim. Theory Applic. 28, 453--482.
J. E. Dennis and J. J. More (1977): Quasi-Newton Methods, Motivation and Theory. SIAM Rev. 19, 46--89.
D. Goldfarb (1976): Factorized Variable Metric Methods for Unconstrained Optimization. Math. Comput. 30, 796--811.
See Also
summary.garch
for summarizing GARCH model fits;
garch-methods
for further methods.
Examples
n <- 1100
a <- c(0.1, 0.5, 0.2) # ARCH(2) coefficients
e <- rnorm(n)
x <- double(n)
x[1:2] <- rnorm(2, sd = sqrt(a[1]/(1.0-a[2]-a[3])))
for(i in 3:n) # Generate ARCH(2) process
{
x[i] <- e[i]*sqrt(a[1]+a[2]*x[i-1]^2+a[3]*x[i-2]^2)
}
x <- ts(x[101:1100])
x.arch <- garch(x, order = c(0,2)) # Fit ARCH(2)
summary(x.arch) # Diagnostic tests
plot(x.arch)
data(EuStockMarkets)
dax <- diff(log(EuStockMarkets))[,"DAX"]
dax.garch <- garch(dax) # Fit a GARCH(1,1) to DAX returns
summary(dax.garch) # ARCH effects are filtered. However,
plot(dax.garch) # conditional normality seems to be violated