[R-SIG-Finance] DEoptim MSGARCH

[Brian G. Peterson]

On 02/21/2014 02:06 PM, Bastian Offermann wrote:
> Dear all,
> there is a JSS paper on DEoptim including a Markov Switching GARCH
> example . Since the optimizer can only handle box constraints, how would
> the standard covariance stationarity condition alpha+beta < 1 in a
> simple GARCH(1,1) be included here?
>
> My guess is sth like
>
> foo = function(x) {
>
> ...
>
> loglikelihood = ...
>
> if(alpha+beta >= 1) loglikelihood = loglikelihood + penalty
>
> }


I'm not entirely sure your question makes sense.

DEoptim in that case was used to calculate a probability of one Markov 
state over another.

There are lots of ways to calculate regime switching GARCH. None of the 
ones I can think of assume covariance stationarity.  These are different 
regimes, so different parameters apply to the two (or more) regimes.

-- 
Brian G. Peterson
http://braverock.com/brian/
Ph: 773-459-4973
IM: bgpbraverock