[R-SIG-Finance] GARCH (1,1) negative volatility???

[Martin Becker]

Dear Trafim,

your code simulates a GARCH(1,1) - process, which is (of course) *not* 
restricted to be nonnegative; the volatility equation of a GARCH(1,1) 
process (which indeed should not produce negative values) is only one of 
the ingredients of the process. If you want to access the conditional 
volatilities (and not the GARCH process path itself), you have to use 
the "extended" argument as in
  gat <- garchSim(spec, n = 10, extended = TRUE)
and extract the conditional volatilities via
  gat$sigma

Best,
  Martin



Trafim Vanishek wrote:
> Dear all,
>
> I am using GARCH (1,1) model to simulate volatility.
> But seems that I am missing something about how it works in R.
>
> The following code produces negative results, though vola cannot be.
> What is wrong here?
>
> library("fSeries")
> library("fGarch")
>
> spec = garchSpec(model = list(omega = 0.01, alpha = 0.13, beta = 0.86))
> gat <- garchSim(spec, n = 10)
>
> Thanks a lot!
>
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>
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-- 
Dr. Martin Becker
Statistics and Econometrics
Saarland University
Campus C3 1, Room 206
66123 Saarbruecken
Germany