Garch and multivariate garch
The Bauwens survey paper in the Journal of Applied Econometrics is very good, but it lacks any practical examples of actually estimating multivariate garch models. In fact, I don't know of any survey paper that discusses the real life practical issues of estimating multivariate garch models. A good intuitive guide to forecasting correlation is in Carol alexander's book Market Models. Unfortunately, she spends a lot of time plugging her orthogonal garch model which is rather problematic in practice. A big problem in assessing the accuracy of estimating something like a conditional correlation is that the "true" time varying correlation is not observable so that the output of a multivariate garch model cannot be compared to an "actual" correlation to assess forecasting accuracy. One can try to follow Andersen and Bollerslev and try to compare a garch correlation forecast to a realized correlation computed from high frequency data. However, this is also fraught with problems as it is not clear how one is supposed to compute realized correlation. I have a paper under preparation that looks at evaluating multivariate garch models using realized correlation. Unfortunately, none of the typical multivariate garch models work very well - especially the dynamic conditional correlation model of Engle. This is often the worst model! I have a reference list of some empirical multivariate garch papers and I'll post some references later this week. **************************************************************** * Eric Zivot * * Professor and Gary Waterman Distinguished Scholar * * Department of Economics * * Box 353330 email: ezivot at u.washington.edu * * University of Washington phone: 206-543-6715 * * Seattle, WA 98195-3330 * * * www: http://faculty.washington.edu/ezivot * ****************************************************************
On Sun, 13 Apr 2008, michal miklovic wrote:
Hi, I am quite familiar with univariate garch models but, unfortunately, not an expert on multivariate garch models. However, I would recommend that you have a look at this paper: Bauwens, Laurent, Rombouts (2006): Multivariate garch models: a survey, J. of applied econometrics 21, pp. 79 - 109. Chapter 3 in the following book provides a highly readable and not very technical description of the dynamic conditional correlation multivariate garch model of Engle (2002), which has been implemented in several statistical software packages but I am not not aware of an implementation in R. Christoffersen (2003): Elements of financial risk management, Academic Press The Engle reference is: Engle (2002): Dynamic conditional correlation - a simple class of multivariate garch models, J. of business and economic statistics 20, pp. 339 - 350. Hope this helps. Best regards, Michal ----- Original Message ---- From: Matthieu Boyer <matthieudm.boyer at gmail.com> To: r-sig-finance at stat.math.ethz.ch Sent: Sunday, March 30, 2008 12:40:40 PM Subject: [R-SIG-Finance] Garch and multivariate garch Hello everybody, I know that there is a lot of messages regarding this topic but it starts becoming a wonderful mess! I just wanted to know if I can chat some day with somebody who knows garch models and more particularly multivariate garch model. I'm a student and I'm working with a big insurance company on volatility estimation and the next step is to work on correlation. I've already done some research on the web and I've found 2 methods: -first, use a little trick with an univariate garch ( http://www.burns-stat.com/pages/Working/multgarchuni.pdf) -the second method consists in using mgarchbekk package. As the whole theory about garch is quite recent, I don't have any hindsight on it! I hope that someone will help me! Have a good day everybody! Matt [[alternative HTML version deleted]]
_______________________________________________ R-SIG-Finance at stat.math.ethz.ch mailing list https://stat.ethz.ch/mailman/listinfo/r-sig-finance -- Subscriber-posting only. -- If you want to post, subscribe first. __________________________________________________ [[alternative HTML version deleted]] _______________________________________________ R-SIG-Finance at stat.math.ethz.ch mailing list https://stat.ethz.ch/mailman/listinfo/r-sig-finance -- Subscriber-posting only. -- If you want to post, subscribe first.