Likelihood-based estimation of latent generalised ARCH structures

Fiorentini, Gabriele, Sentana, Enrique and Shephard, Neil (2003) Likelihood-based estimation of latent generalised ARCH structures. Financial Markets Group Discussion Papers (453). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

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 calculation of a classical estimator via the simulated EM algorithm or a Bayesian solution in 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.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://fmg.lse.ac.uk
Additional Information:	© 2003 The Authors
Divisions:	Financial Markets Group
Subjects:	H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
JEL classification:	C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C11 - Bayesian Analysis
Date Deposited:	13 Aug 2009 10:25
Last Modified:	11 Dec 2024 18:35
URI:	http://eprints.lse.ac.uk/id/eprint/24852

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