[R-SIG-Finance] Implied volatility as external regressors in rugarch?

[alexios ghalanos]

Milos,

If you notice in his spreadsheet, he is using VIX[t-1] (as it should
be), but you are passing the ex.reg without lagging it (perhaps this
should be made explicit in the documentation).

Pass instead this:

>ex.reg=c(0,(vix^2)/252)

Also, don't pass data frames, use matrix (or xts) for the
external.regressors and numeric for the data (when not using xts).

You'll notice the rugarch likelihood is slightly better and the numbers
very slightly different. If you plug the rugarch coefficients into his
excel spreadsheet you'll get the exact same likelihood.

-Alexios

On 25/08/2014 04:59, Milos Cipovic wrote:
> Hi there,
> I was trying to redo in R excel exercises from Peter F. Christoffersen's
> book Elements of Financial Risk Management.
> 
> I have different results for problem 3 on page 92 (chapter 4)
> You can read it here:
> 
> http://books.google.rs/books?id=YkcMBGYbRasC&printsec=frontcover&dq=Elements+of+Financial+Risk+Management&hl=sr&sa=X&ei=K676U6PEJIb6PKWsgZAD&ved=0CBwQ6AEwAA#v=onepage&q&f=false
> 
> Here is my R code:
> 
> 
> #################################################
> 
> library(gdata)
> library(rugarch)
> #   I downloaded data directly from book's companion site#
> data=read.xls("http://booksite.elsevier.com/
>                9780123744487/chapter_data_results/
>                Chapter4_Results.xls",perl="C:\\Perl64\\bin\\perl.exe",
>                sheet=3)
> #  where perl="C:\\Perl64\\bin\\perl.exe" is location of pearl.exe file on
> my machine,on your's it may differ   #
> 
> sandp=as.data.frame(data[,2])
> 
> returns=diff(log(sandp))
> 
> vix=as.data.frame(data[-1,4])
> 
> #scale to one day
> ex.reg=(vix^2)/252
> 
> spec=ugarchspec(variance.model=list(model="fGARCH",garchOrder=c(1,1),submodel="NAGARCH",
> external.regressors=ex.reg),mean.model=list(armaOrder=c(0,0),include.mean=F))
> 
> result=(ugarchfit(spec,returns))
> 
> coef(result)
> likelihood(result)
> 
> # If you download excel sheet from
> http://booksite.elsevier.com/9780123744487/chapter_data_results/Chapter4_Results.xls
> #You'll see the difference in results in maximum likelihoods.
> #SO,AM I DOING SOMETHING WRONG OR IS THIS JUST A NUMERICAL ERROR??
> #(This may be a amateur question and I apologize for that) but I'm not
> shore can I use implied volatility as an external regressor like I did here?
> 
> 	[[alternative HTML version deleted]]
> 
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