MAR-ARCH

Ajay is talking about something different than what you (Dirk)
are and I was talking about.

The latter topic is: how good does my model capture the
financial phenomenon in which I'm interested.

Ajay's topic is: I have a model and at least two implementations
of that model.  I don't care how good it is for interpreting reality,
but what I do care about is if I can say anything about the quality
of the implementations.

Garch is a particularly fertile ground for the second question.  It
is probably somewhat of an exaggeration, but there may be problems
for which you get a unique answer from each implementation you try.
Even for univariate garch(1,1) assuming Gaussian errors.

As for standards on this, Bruce McCullough wrote a paper on garch
implementations, and Dietmar Maringer and Peter Winker wrote a
paper on the difficulty of getting the optimal estimate.

Pat

Hi Ajay,

On 23 October 2007 at 19:47, Ajay Shah wrote:
| On Tue, Oct 23, 2007 at 09:50:49AM +0100, Patrick Burns wrote:
| > Comparing estimators is a good idea.  But a good comparison
| > is more complex than stated.
| 
| I'm sorry I was not clear. For starters, I was only after software
| testing. Does this code replicate the numerical values obtained for
| standard datasets with standard codes?

Well are there standard datasets and results for volatility estimation?

It's been a (longish) while since I looked closely at this, but isn't
volatility still an unobservable?  Short of a Monte Carlo study with metrics
such as the ones suggested by Pat, what do you suggest one looks at?
Realized vol?  Implied vol?  "Traded" vol from variance or vol contracts?

I'm sure there are good answers to be had for this, so let's hear them :)

Dirk