Dear Trabadur
I have some problems with using DCC-GARCH add-in I hope you help me about it.
What I understand is that this add in is not working properly, when its a simple model without any exogenous shock to the mean or variance equations of its GARCH models it works, but when I include some variable to mean equation or if I include AR term then it can not converge. although the maximum number of iterations is 500 but it does not go more than 10 or 15 iterations and consequently it doesn't converge. Do you think there is a bug in the add in or is there any solution for that?
its good to mention that when I estimate the same model using the same data with DCC GARCH code, it works properly.
I would be very thankful if you help me about it.
Thanks
As usual, it is difficult to pinpoint the source of problem (if any) without seeing actual data/workfile. But;
1) Since this is a two-step model, you should check the first step (i.e. estimation of univariate GARCH models) to see if everything is OK. Try alternative GARCH models.
2) Model may become ill-defined or inconsistent after including an exogenous variable or an AR term. Try dropping them or find better RHS variables.
3) Starting values of coefficients may be too far from an optimal solution. Try different initial parameter values (i.e. theta vector).
4) Correlation targeting may be too restrictive. Try unchecking this option.
5) Sample period may not be appropriate to carry out such an analysis. Try adjusting the sample.
6) Optimization algorithm may perform poorly. Try other alternatives.
7) Algorithms may fall out the domain of estimation parameters. Try optimizing the squared coefficients.
Such models are nonlinear in nature and therefore there is no guarantee that they will always converge and yield proper estimation results. It really needs "your" time and effort to get it work.
