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An almost closed form estimator for the EGARCH model

  • HAFNER, Christian

    ()

    (Université catholique de Louvain, CORE & ISBA, Belgium)

  • LINTON, Oliver

    ()

    (Faculty of Economics, Cambridge University, UK)

The EGARCH is a popular model for discrete time volatility since it allows for asymmetric effects and naturally ensures positivity even when including exogenous variables. Estimation and inference is usually done via maximum likelihood. Although some progress has been made recently, a complete distribution theory of MLE for EGARCH models is still missing. Furthermore, the estimation procedure itself may be highly sensitive to starting values, the choice of numerical optimation algorithm, etc. We present an alter- native estimator that is available in a simple closed form and which could be used, for example, as starting values for MLE. The estimator of the dynamic parameter is inde- pendent of the innovation distribution. For the other parameters we assume that the innovation distribution belongs to the class of Generalized Error Distributions (GED), profiling out its parameter in the estimation procedure. We discuss the properties of the proposed estimator and illustrate its performance in a simulation study.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2013022.

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Date of creation: 22 May 2013
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Handle: RePEc:cor:louvco:2013022
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  1. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  2. Francq, Christian & Horvath, Lajos & Zakoian, Jean-Michel, 2009. "Merits and drawbacks of variance targeting in GARCH models," MPRA Paper 15143, University Library of Munich, Germany.
  3. Duranton, Gilles & Martin, Philippe & Mayer, Thierry & Mayneris, Florian, 2010. "The Economics of Clusters: Lessons from the French Experience," OUP Catalogue, Oxford University Press, number 9780199592203.
  4. repec:cup:cbooks:9780521715348 is not listed on IDEAS
  5. Zaffaroni, Paolo, 2009. "Whittle estimation of EGARCH and other exponential volatility models," Journal of Econometrics, Elsevier, vol. 151(2), pages 190-200, August.
  6. repec:cup:cbooks:9780521887427 is not listed on IDEAS
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