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I am looking for a R library for modeling a Markov-Switching E-GARCH process.

In other questions at StackExchange related to GARCH models, the package rugarch is often mentionned. Do you recommend it in my case?

I would like that R library I am seeking had the following features:

  • allows to observe/control the volatility term structure
  • allows to impose long-term volatility
  • has calibration routines
  • includes forecasting procedures

In fact, I would like to carry out a volatility analysis work à la Carole Alexander, as described in her book Market Risk Analysis Volume II: Practical Financial Econometrics.

Thank you.

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  • $\begingroup$ I don't think Markov-switching GARCH models are implemented in R as of now. "rugarch" is indeed a good package for univariate GARCH (and ARFIMA) models, and "rmgarch" is a useful package for multivariate GARCH models, but there is no Markov switching there. What do you mean exactly by "impose long-term volatility"? $\endgroup$ – Richard Hardy Feb 25 '16 at 19:37
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    $\begingroup$ @RichardHardy: Now they are, please see my answer below: quant.stackexchange.com/a/33609/12 $\endgroup$ – vonjd Apr 10 '17 at 19:48
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    $\begingroup$ @vonjd, thank you, it will be interesting to take a look. $\endgroup$ – Richard Hardy Apr 11 '17 at 5:17
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There is now a package for that: The MSGARCH package, you can find it on CRAN.

You can find an exhaustive vignette here:

David Ardia, Keven Bluteau, Kris Boudt, Denis-Alexandre Trottier: Markov-Switching GARCH Models in R: The MSGARCH Package (2016)

Abstract

Markov-switching GARCH models have become popular to model the structural break in the conditional variance dynamics of financial time series. In this paper, we describe the R package MSGARCH which implements Markov-switching GARCH-type models very effficiently by using C object-oriented programming techniques. It allows the user to perform simulations as well as Maximum Likelihood and Bayesian estimation of a very large class of Markov-switching GARCH-type models. Risk management tools such as Value-at-Risk and Expected-Shortfall calculations are available. An empirical illustration of the usefulness of the R package MSGARCH is presented.

For modelling EGARCH you set model = "eGARCH" in the create.spec function (see p. 2 in the abovementioned vignette).

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