GARCH Hedge Ratio Using BEKK

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rawson
Posts: 3
Joined: Thu Oct 02, 2008 12:14 pm

GARCH Hedge Ratio Using BEKK

Postby rawson » Thu Oct 02, 2008 12:30 pm

Does anyone know how to compute the time varying hedge ratio when the estimates are derived from running the GARCH system?

dperez8
Posts: 1
Joined: Thu Oct 02, 2008 9:09 pm

Postby dperez8 » Fri Oct 03, 2008 7:01 am

I'd like to know that as well.

theodore04
Posts: 8
Joined: Fri Nov 07, 2008 9:22 am

Re: GARCH Hedge Ratio Using BEKK

Postby theodore04 » Fri Nov 07, 2008 9:50 am

does anyone know whether there is a way of estimating a multivariate GARCH-M in EViews 6?

Gene
EViews Expert
Posts: 20
Joined: Wed Sep 24, 2008 1:08 pm

multivariate GARCH-M

Postby Gene » Thu Nov 13, 2008 10:52 pm

theodore04 wrote:does anyone know whether there is a way of estimating a multivariate GARCH-M in EViews 6?


EViews 6 doesn't support ARCH-in-mean for multivariate ARCH models. You can roll your own ARCH-in-mean by following the steps below:

1) estimating a GARCH model first without conditional variance in the mean equation
2) generate the conditional variance
3) next create another GARCH system, this time place the conditional variance terms from the first system in the mean equations
4) estimate this system
5) generate the conditional variance with the same name as the first time
6) repeat 4) and 5) until no improvement in model criteria (log likelihood, AIC, etc.)

The above method is a consistent estimator of ARCH-M models.

Here is an example program where y1 and y2 are the two depend variables, but you can do this interactively by hand following the exact same steps:

Code: Select all

' estimate a GARCH model
system sys01
sys01.append y1=c(1)
sys01.append y2=c(2)
sys01.ARCH @DIAGVECH  C(INDEF)   ARCH(1,INDEF)   GARCH(1,INDEF)
sys01.makegarch

' estimate a GARCH model with garch-in-mean terms
system sys02
sys02.append y1=c(1) + c(3)*garch_01 + c(4)*garch_01_02
sys02.append y2=c(2) + c(3)*garch_01 + c(5)*garch_01_02
sys02.ARCH @DIAGVECH  C(INDEF)   ARCH(1,INDEF)   GARCH(1,INDEF)
sys02.makegarch

' set convergence criteria
!conv = 0.01

scalar lk = 0

' continue to estimate if difference between successive estimations is greater than !conv
while (abs(sys02.@logl-lk) >!conv)
   sys02.ARCH @DIAGVECH  C(INDEF)   ARCH(1,INDEF)   GARCH(1,INDEF)
   lk=sys02.@logl
   sys02.makegarch
wend

PERRYGOGAS
Posts: 36
Joined: Sat Nov 01, 2008 12:22 pm

Re: GARCH Hedge Ratio Using BEKK

Postby PERRYGOGAS » Thu Dec 25, 2008 6:49 pm

Excellent tip! thank you! and it is actually much easier in practise than it sounds!

PERRYGOGAS
Posts: 36
Joined: Sat Nov 01, 2008 12:22 pm

Re: GARCH Hedge Ratio Using BEKK

Postby PERRYGOGAS » Fri Dec 26, 2008 11:59 am

PERRYGOGAS wrote:Excellent tip! thank you! and it is actually much easier in practise than it sounds!


On a second thought this will create the generated regressors problem!!!


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