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A General Framework for Observation Driven Time-Varying Parameter Models

  • Drew Creal
  • Siem Jan Koopman
  • Andre Lucas

We propose a new class of observation driven time series models that we refer to as Generalized Autoregressive Score (GAS) models. The driving mechanism of the GAS model is the scaled likelihood score. This provides a unified and consistent framework for introducing time-varying parameters in a wide class of non-linear models. The GAS model encompasses other well-known models such as the generalized autoregressive conditional heteroskedasticity, autoregressive conditional duration, autoregressive conditional intensity and single source of error models. In addition, the GAS specification gives rise to a wide range of new observation driven models. Examples include non-linear regression models with time-varying parameters, observation driven analogues of unobserved components time series models, multivariate point process models with time-varying parameters and pooling restrictions, new models for time-varying copula functions and models for time-varying higher order moments. We study the properties of GAS models and provide several non-trivial examples of their application.

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File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd08-038.pdf
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Paper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd08-038.

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Date of creation: Mar 2009
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Handle: RePEc:hst:ghsdps:gd08-038
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  1. van den Goorbergh, Rob W.J. & Genest, Christian & Werker, Bas J.M., 2005. "Bivariate option pricing using dynamic copula models," Insurance: Mathematics and Economics, Elsevier, vol. 37(1), pages 101-114, August.
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