Likelihood-based Estimation of Latent Generalised ARCH Structures

• Gabriele Fiorentini ^[1] ; Enrique Sentana ^[2] ; Neil Shephard ^[3]
  1. [1] Universitat d'Alacant

     Universitat d'Alacant

     Alicante, España

     
  2. [2] Centro de Estudios Monetarios y Financieros

     Centro de Estudios Monetarios y Financieros

     Madrid, España

     
  3. [3] Nuffield College

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• Localización: Documentos de Trabajo ( CEMFI ), Nº. 4 (Working Paper No. 0204, September 2002), 2002
• Idioma: inglés
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• Resumen

  • GARCH models are commonly used as latent processes in econometrics, financial economics and macroeconomics. Yet no exact likelihood analysis of these models has been provided so far. In this paper we outline the issues and suggest a Markov chain Monte Carlo algorithm which allows the calculationof a classical estimator via the simulated EM algorithm or a Bayesian solutionin O(T) computational operations, where T denotes the sample size. We assess the performance of our proposed algorithm in the context of both artificial examples and an empirical application to 26 UK sectorial stock returns, and compare it to existing approximate solutions.