Weighted trimmed likelihood estimator for GARCH models
AbstractGeneralized autoregressive heteroskedasticity (GARCH) models are widely used to reproduce stylized facts of ﬁnancial time series and today play an essential role in risk management and volatility forecasting. But despite extensive research, problems are still encountered during parameter estimation in the presence of outliers. Here we show how this limitation can be overcome by applying the robust weighted trimmed likelihood estimator (WTLE) to the standard GARCH model. We suggest a fast implementation and explain how the additional robust parameter can be automatically estimated. We compare our approach with other recently introduced robust GARCH estimators and show through the results of an extensive simulation study that the proposed estimator provides robust and reliable estimates with a small computation cost. Moreover, the proposed fully automatic method for selecting the trimming parameter obviates the tedious ﬁne tuning process required by other models to obtain a “robust” parameter, which may be appreciated by practitioners.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 26536.
Date of creation: Oct 2010
Date of revision:
GARCH Models; Robust Estimators; Outliers; Weighted Trimmed Likelihood Estimator (WTLE); Quasi Maximum Likelihood Estimator (QMLE);
Find related papers by JEL classification:
- C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-04 (All new papers)
- NEP-ECM-2010-12-04 (Econometrics)
- NEP-ETS-2010-12-04 (Econometric Time Series)
- NEP-RMG-2010-12-04 (Risk Management)
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