Merits and Drawbacks of Variance Targeting in GARCH Models
Variance targeting estimation (VTE) is a technique used to alleviate the numerical difficultiesencountered in the quasi-maximum likelihood (QML) estimation of GARCH models. It relieson a reparameterization of the model and a first-step estimation of the unconditional variance.The remaining parameters are estimated by QML in a second step. This paper establishesthe asymptotic distribution of the estimators obtained by this method. Comparisons with thestandard QML are provided. In particular, when the model is misspecified the VTE can besuperior to the QMLE for long-term prediction or Value-at-Risk calculation. An empiricalapplication based on stock market indices is proposed.
|Date of creation:||2009|
|Contact details of provider:|| Postal: 15 Boulevard Gabriel Peri 92245 Malakoff Cedex|
Phone: 01 41 17 60 81
Web page: http://www.crest.fr
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lajos Horváth & Piotr Kokoszka & Ricardas Zitikis, 2006. "Sample and Implied Volatility in GARCH Models," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(4), pages 617-635.
- L. Bauwens & J. V. K. Rombouts, 2007.
"Bayesian Clustering of Many Garch Models,"
Taylor & Francis Journals, vol. 26(2-4), pages 365-386.
- BAUWENS, Luc & ROMBOUTS, Jeroen VK, "undated". "Bayesian clustering of many GARCH models," CORE Discussion Papers RP 1916, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- BAUWENS, Luc & ROMBOUTS, Jeroen, 2003. "Bayesian clustering of many GARCH models," CORE Discussion Papers 2003087, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Carrasco, Marine & Chen, Xiaohong, 2002. "Mixing And Moment Properties Of Various Garch And Stochastic Volatility Models," Econometric Theory, Cambridge University Press, vol. 18(01), pages 17-39, February.
- White, Halbert, 1982. "Maximum Likelihood Estimation of Misspecified Models," Econometrica, Econometric Society, vol. 50(1), pages 1-25, January.
- Francq, Christian & Zako an, Jean-Michel, 2006. "Mixing Properties Of A General Class Of Garch(1,1) Models Without Moment Assumptions On The Observed Process," Econometric Theory, Cambridge University Press, vol. 22(05), pages 815-834, October.
- Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:crs:wpaper:2009-17. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Florian Sallaberry)
If references are entirely missing, you can add them using this form.