Help with coding a C-GARCH-BEKK

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Help with coding a C-GARCH-BEKK

Postby amnordstroem » Tue Mar 27, 2018 7:51 am

Hi all,

I am working on an Eviews program to estimate volatility spillovers in a bivariate BEKK-GARCH framework. My univariate GARCH series are estimated using the Component GARCH (C-GARCH) model. My unrestricted bivariate BEKK is a modification of Eviews own example program of a restricted bivariate BEKK-GARCH.

My idea is that since the C-GARCH(1,1) model could be rewritten as a GARCH(2,2) model, I should add the estimated coefficients as follows to get the initialisation values for my bivariate BEKK:

'C-GARCH(1,1): GARCH = Q + alpha(RESID(-1)^2 - Q(-1)) + beta(GARCH(-1) - Q(-1)),
'Q = omega + rho(Q(-1) - omega) + phi(RESID(-1)^2 - GARCH(-1)) can be rewritten as a GARCH(2,2) process:

'GARCH(2,2) = omega + alpha(1)*RESID(-1)^2 + alpha(2)*RESID(-2)^2 + beta(1)*GARCH(-1) + beta(2)*GARCH(-2)

'C-GARCH(1,1) = GARCH(2,2) = (1-alpha-beta)(1-rho)*omega + (alpha + phi)*RESID(-1)^2 - (alpha*rho + (alpha + beta)*phi)*RESID(-2)^2 + (beta - phi)*GARCH(-1) - (beta*rho - (alpha + beta)*phi)*GARCH(-2)

'omega(1) = (1-alpha-beta)(1-rho)*omega
'alpha(1) = (alpha + phi) - (alpha*rho +(alpha + beta)*phi)
'beta(1) = (beta - phi) - (beta*rho - (alpha + beta)*phi)

Now, I am not used to programming this kind of complex models, and I just want to know if I've got this correctly. The version attached is very basic and I know that the unovariate series aren't well-fitted. I just wanted to make it as simple as possible to read. If anyone would want to give me some feedback, it would be greatly appreciated!

Best, Amanda
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