[R-SIG-Finance] RUGARCH eGARCH and variance targeting

[stoyan.stoyanov]

Hi all,

Again, I am using the rugarch package to fit a GARCH model to an adjusted
daily returns series. I am currently experimenting using an eGARCH instead
of the TGARCH that I have been working with. However, once I use the
variance targeting option with an eGARCH model my *unconditional* variance
estimates just don't make sense - they take on values >1. I am curious
whether this is caused by model mis-specification (eGARCH should not be used
together with variance targeting), or whether it might be a bug in rugarch.
Any thoughts?
As always, code, data and output are below.

*Code:*
spec=ugarchspec(variance.model=list(model=eGARCH, garchOrder=c(1,1),
                                      submodel=NULL,
external.regressors=NULL, variance.targeting=TRUE),
                mean.model=list(armaOrder=c(2,2), include.mean=TRUE,
archm=TRUE, 
                                   archpow=1, arfima=FALSE,
external.regressors=NULL, archex=FALSE),
                distribution.model = "std", start.pars=list(),
fixed.pars=list())

 fit=ugarchfit(spec, data, out.sample=252, solver="solnp",
solver.control=list(), 
               fit.control=list(stationarity=1, fixed.se=0, scale=0))

print(uncvariance(fit))

*Output:*
unconditional 
     1.000259 

*Data:*
http://r.789695.n4.nabble.com/file/n4634896/data.csv data.csv 

Thank you,
Stoyan

-----
Stoyan Stoyanov
The University of Chicago Booth School of Business
MBA Class of 2013
(312) 532-0120 | stoyanov at chicagobooth.edu
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