Hello! I am trying to fit, using rugarch library, the Duan's 1995 model for stock option pricing. Duan's model includes the mean , garch in mean, their special GARCH specification and finally one more factor, which is 0.5* variance. More specifically it is: rt = r + ?*sigma - 0.5 * variance + et*sigma My problem is that I cannot find how I can include the -0.5*variance in the mean model. ?*sigma I can use the archm function but not this extra item. Do you know how I can force ugarchspec to add this? Also in general, how can I add extra endogenous variables other than the standard ones? One more question, the GARCH model of Duan's paper looks like the family-GARCH model where ?=?=2, but the family-GARCH is using standardized residuals where Duan is using the raw residuals. Can this be changed as well?
rugarch fitting Duan's 1995 model
1 message · Argyrios Ramandanis