Questions tagged [garch]

Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model is used for time series in which the conditional variance is time-varying and autocorrelated. The conditional variance is a linear combination of lagged conditional variances and lagged squared errors. The conditional variance equation in GARCH models is deterministic, in contrast to Stochastic Volatility (SV) models.

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Applying GARCH to Panel Data

I have a panel consisting of some quantity - say earnings/cash flows/or something similar. I am interested in forecasting the volatility that is inherent to that respective measure. In a single time ...
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Can you apply GARCH to ARIMAX models?

Is it possible to apply the idea of GARCH to time series models that include exogenous variables? For example, say I estimate a cash flow forecast model. Does it make sense to model the residuals by ...
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Models that can improve FHS (with possible residuals manipulation)

The Filtered Historical Simulation (FHS) is a tough benchmark. By: choosing among the most complicated ARMA-GARCH variants with automatic model and lag selection, manipulating standardized residuals ...
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34 views

Preferred stock volatility model [closed]

If I want to forecast stock volatility, what would be the best GARCH model and why? (ARCH, GARCH-M, IGARCH, EGARCH, TARCH etc)
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GARCH(1,1) variance forecast in one-step or multi-step?

Suppose I want to forecast daily variance of a stock using GARCH(1,1) model while I have high frequency data of 5 minute returns. What is the difference between applying GARCH(1,1) in one-step ...
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28 views

ARMA Order in GARCH

I want to do a GARCH forecast with a GARCH(1,1) Model but I am confused on which mean model I can or should choose. If I call the Auto.Arima function on the squared returns I get an ARMA(0,4) process ...
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EGARCH interpretation

I run EGARCH Model for my data, in Mean and Variance Equation.all P value are significant, but my ARCH Coefficient is negative. so my question .. is it ok if I use this model ? or maybe there’s a ...
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GARCH model using high frequency price return

I would like to forecast variance at time length $k\delta$ based on a price (return) time series of time step length $\delta$. I will apply a GARCH(1,1) model to subsamples at time intervals length $k\...
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garch(1,1) Annualised Volitility with python

I am trying to calculate the annualized Volatility of given returns for a stock with Garch(1,1) on python using a code I found online. The value I should be getting is around 27, but the value I am ...
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Why a model like GARCH is only good for daily volatility and not for intraday volatilities?

I´m currently looking to implement an intraday volatility model and I´m new at the quant world and I learned how superior is GARCH family is for daily volatilities, but in the research stage I found ...
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Athens Stock Exchange GARCH-M (Paper replication)

I am trying to replicate one part of a paper which tries to model the Athens Stock Exchange daily returns. I do not have the original dataset, so some differences are expected, but when I fit the ...
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How to calculate all betas for Fama French 3 factor using DCC?

I have already calculated variance-covariance matrices using DCC on HML, SMB and Rm −Rf factors and got stuck here. I usually use regression ​to estimate all β. Can anybody tell me how to proceed? I ...
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forecasting hourly variance with higher resolution data available

Assume one has price data $P_{1}, P_{2}, \dots, P_{n}$ with one hour resolution and aims to forecast the variance for one hour ahead return. The first approach to try is ARCH or GARCH models. There ...
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Use of ugarchroll vs ugarchforecast: setting parameters

I would like to generate 21 day ahead forecast volatility with ugarchroll. I know it is similar to ugarchforecast with the exception that ugarchroll is a rolling average which considers initially the ...
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Is variance of residuals of Markov switching GARCH model regime specific?

I'm using MSGARCH package in R. By return_data/Volatility(fit.model), I get the residuals. When I calculate the standard deviation of the residuals, it turns out that it's close to 1 for all residuals....
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BEKK Garch for time-varying beta in python

I am currently trying to analyse stocks of the S&P500 for their time-varying beta using BEKK Garch in python(jupyter). Unfortunately, I can't find any good packages and the documentation for bekk ...
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Can you approximate stochastic volatility processes using GARCH processes?

Let me specific. Suppose that you have the following process: \begin{align} z_t &= \sigma_t \epsilon_t \\ \sigma_t &= \sigma \exp \left( \frac{v_t}{2} \right) \end{align} where $v_t$...
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Python arch_model package last_obs vs. for loop rolling window slight differences

i am using the GARCH package in Python to forecast volatility of the SPX Index. According to the documentation, there are two arguments "first_obs" and "last_obs" first_obs({int, ...
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how to interpret the results of a GARCH model fit R/python

I have got the following output from a gjrGARCH model, and I need help to interpret it in order to decide whether it is already a good model and proceed with the forecast. ...
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“ugarch” roll from “rugarch” not working in source()

I have an automatic rolling GARCH forecast using the rugarch package in R. It is stored in a file GARCH.R. When I try to run the code using source('GARCH.R'), I get ...
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117 views

Modelling Geometric Browian Motion price model with stochastic volatility

I'd like to generate scenarios (simulate several paths of the process) for several stocks using multinomial Geometric Brownian Motion under Stochastic volatility assumption. I'm going to use it in my ...
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Modelling volatility for higher frequency data

I'm doing some academic work on volatility forecasting. I've got 1-minute bar data. It is not clear to me what model is best suited for forecasting volatility when higher frequency data is available. ...
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Non-Linear Time-Dependent Volatility

My data consist of monthly electricity futures contracts. Unlike other commodities, electricity is delivered throughout a month (rather than on a specific date), which means that, as the active month ...
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Garch models - are they useful for hedging? If so how?

I understand that Garch models are useful to predict volatility. But are they useful for hedging in practice? If I want to hedge volatility, why shouldn't I just use a Variance Swap? In other words, ...
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A simple question about the dummies of structural variance (ICSS) breaks on GARCH

The question related to How to implement dummy variables into GARCH(1,1) model from structural breaks (ICSS) I have a simple question about that. Suppose my series have two breaks on t=2 and t=5 for ...
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50 views

Ratios or combinations of risk measures

In finance, alternative risk measures such as value-at-risk (VaR) and GARCH are introduced as replacements to standard deviation volatility. Is there any application or value where several risk ...
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134 views

How to obtain one-step ahead forecast in Python based on GARCH?

I am trying to produce one-step ahead forecast using GARCH in Python using a fixed windows method. I ultimately want to put the code below in a for loop, but this code snippet does not perform as I ...
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What is the difference between parametric and non-parametric models?

I'm reading about volatility modelling and I came across the concept of parametric and non-parametric models. For example, GARCH is a parametric model and Realized Volatility is a non-parametric model....
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39 views

GARCH(1,1) forecast plot in R with training data

I've fit a GARCH(1,1) model in R and would like to create a plot similar to the one in this question: Is this the correct way to forecast stock price volatility using GARCH Could someone direct me to ...
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56 views

Do you need to simulate the entire stock path for option pricing with GARCH?

I'm trying to price European options with a GARCH volatility model. What I have is a program that calibrates the GARCH volatility process for a stock which I intend to use to value a derivative on the ...
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Backtesting conditional VaR

I'm writing a thesis about conditional VaR of Standard & Poor's 500 index. I have fitted my log-returns with GARCH(1,1)-proces and then made some conditional VaR-forecast (500 observations) with ...
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How to predict realised variance?

I am trying to predict the realised daily close to close variance of an equity index. I checked the literature on volatility forecasting and tried a bunch of things on a dataset for the S&P 500....
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$n$-day ahead forecast for asymmetric DCC-GARCH model

I am working on forecasting covariances with the use of MGARCH models. I was wondering if anyone knows how to implement a n-day ahead forecast of the aDCC (asymmetric DCC) model in R. The ...
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Implied volatility surface modelling in filtered historical simulation

What is the best way to model implied volatility surface in filtered historical simulation (other than keeping it constant)? Is it appropriate to apply GARCH-like model to every point on the surface? ...
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105 views

White noise in ARCH model

I am looking at the ARCH model where we have $\hat{\varepsilon}_t^2=\alpha_0 + \alpha_1\hat{\varepsilon}_{t-1}^2 + \alpha_2\hat{\varepsilon}_{t-2}^2 + \cdots + \alpha_q\hat{\varepsilon}_{t-q}^2 +v_t$ ...
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The residuals of GARCH model reject Engle’s Test despite large parameters

I'm trying to build a model to predict the volatility for a financial asset with ARIMA-GARCH model. (I use log returns as data) I fit my ARIMA model with AIC and I did Engle’s Test to ensure there is ...
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60 views

Maximizing a GARCH likelihood: Good practice on constraining solutions and initial values

I am currently working on option pricing model and I'd like to include a method for maximizing the likelihood of returns under the P measure. I am using the Heston and Nandi (2000) model: \begin{align}...
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Suggestions for choosing an optimization algorithm for fitting custom GARCH models by QMLE in R?

I am trying to fit a custom GARCH model by QMLE in R. I have written out the log likelihood function and am now working on optimizing it. However, choosing an optimization algorithm has proven to be ...
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I would like to fit a CARR model using the 'rugarch' package in R - what should I include in the specification?

I know I have to specify a GARCH model for the square root of range without a constant term in the mean equation - just unsure how to apply this in the rugarch function.
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Value at Risk with Monte Carlo using DCC-Garch in R

So I was trying to compute the 1- day Value at Risk of a hedge portfolio (consisting of 1 stock and one future) with a DCC-Garch model in R. So what I did is since I had historical data of 10 years: ...
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134 views

Why is volatility unobservable even ex post?

I am looking into how to measure volatility, and I am not sure if I have confused myself too much in my research. So now I really need your help. So please either confirm my understanding of ...
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137 views

Problem with the maximum likelihood for a GARCH-type of model

I'm currently working with the following GARCH process from Heston and Nandi (2000): \begin{align*} r_{t+1} - r_f &= \lambda h_{t+1} - \frac{h_{t+1}}{2} + \sqrt{h_{t+1}}z_{t+1} \\ h_{t+1} ...
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100 views

How do you handle implied volatility performing a VaR Monte-Carlo simulation using a stochastic volatility process calibrated on the underlying

Say you have a portfolio consisting of options each having a market implied volatility. If you now use some stochastic volatility model like GARCH to calibrate the real world volatility of the ...
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Correlation in GARCH model

I don't think I have ever come across the concept of stochastic correlation so I imagine it's not very widespread, but I had the idea to implement a Monte Carlo VaR model for a portfolio of stocks by ...
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1answer
108 views

VARX DCC GARCH in R for volatility spillover

I have 5 series for which I want to analyze volatility spillover (to and from the series) via VARX DCC GARCH for both dynamic and comtemporaneous effect. Moreover, I would like to analyze seasonal ...
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85 views

Can ARMA and GARCH models be estimated separately in ARMA/GARCH?

Can I use the residuals of the ARMA model to build a GARCH model(with Zero mean)? If so, does this mean that this GARCH model(with Zero mean) has no effect on ARMA's estimates. For example, if I want ...
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199 views

What stochastic volatility models are industry standard for option pricing and how do they work?

I've started reading up on stochastic volatility models and it seems very difficult to discern which ones are used in practice and which have been mostly left alone in theory. What are the popular ...
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75 views

Pricing options using the IG component GARCH model of BCHJ(2018)

Babaoglu, Christoffersen, Heston and Jacobs (2018) introduced a component GARCH model with inverse Gaussian innovations and an exponentially quadratic pricing kernel back in 2018. The article shouldn'...
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139 views

GARCH(1,1)-M MLE optimization with fmincon in R

I've searched thru dozens of papers and did not find in any of them satisfying and enough theoretical answers to my concerns. So I've combined everything what I found below. Please indicate if my ...

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