GARCH estimation
Why not use the L-BFGS-B method and supply a lower bound argument? Josh -----Original Message----- From: r-sig-finance-bounces at stat.math.ethz.ch [mailto:r-sig-finance-bounces at stat.math.ethz.ch] On Behalf Of Patrick Burns Sent: Wednesday, December 05, 2007 12:04 PM To: ShyhWeir Tzang Cc: r-sig-finance at stat.math.ethz.ch Subject: Re: [R-SIG-Finance] GARCH estimation You need to do something in the event that ht becomes non-positive. For example, something like: if(ht <= 0) ht <- 1e-10 What number you use will depend on what the reasonable range of values is for the particular problem. Patrick Burns patrick at burns-stat.com +44 (0)20 8525 0696 http://www.burns-stat.com (home of S Poetry and "A Guide for the Unwilling S User")
ShyhWeir Tzang wrote:
Dear all: I have a garch equation different from the traditional one: y(t)=b1+b2*x(t) + sqrt(h(t))*z(t), where z(t)~N(0,1)
h(t)=b3+b4*h(t-1)+b5*(
z(t-1)-b6*sqrt(h(t-1) )^2
I tried to use optim to estimate the six parameters:
garch <- function(b,x,y){
b1<-b[1]
b2<-b[2]
b3<-b[3]
b4<-b[4]
b5<-b[5]
b6<-b[6]
N<-length(y)
lkhd<-0
ht<-var(y)
for (i in 1:N){
zt<-y[i]-b1-b2*x[i]
ht<-b3+b4*(ht)^2+b5*(zt/sqrt(ht)-b6*sqrt(ht))^2
lkhd<-lkhd +log(ht)+zt^2/ht
}
return(lkhd)
}
optim(c(0.01,0.2,0.2,0.2,0.2,0.2),method="BFGS",fn=garch,
x=data.x,y=data.y)
However, I got the following warnings:
In log(ht) : create NaNs
In sqrt(ht) : create NaNs
........................
Can anyone help me interpreting these warnings? Are there any other
better
way to estimate the parameters? Thank you very much. ShyhWeir [[alternative HTML version deleted]]
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