[R-SIG-Finance] Starting value of conditional mean and variance

Patrick Burns patrick at burns-stat.com
Mon Oct 5 08:49:53 CEST 2015

I haven't studied the issue with
ARIMA, but it is my belief that it
is even less of an issue there.

Maybe someone on the list has looked
into it and has a better sense of the
sensitivity -- rather than being like
the rest of us and not worrying about
it because no one else does.


On 05/10/2015 04:43, Samit Paul wrote:
> Thanks a lot Pat,
> I was more concerned about the second issue which you have pointed out
> well. From the link given (thanks again for the same), I understand that
> if the number of observations are more (around 2000), choice of starting
> value won't matter much in conditional variance estimation by GARCH(1,1)
> model.
> But is the same logic applicable for conditional mean estimation with
> the help of ARIMA model, too? Or do I have to take any precaution for
> the same?
> Best regards,
> Samit Paul
> On Sun, Oct 4, 2015 at 11:54 PM, Patrick Burns <patrick at burns-stat.com
> <mailto:patrick at burns-stat.com>> wrote:
>     I have two possible interpretations
>     of "starting values":
>     1) initial values of coefficients given
>     to the optimizer of the likelihood
>     2) the value of the conditional variance
>     at the time point before the first observation
>     If you are talking about the first, I
>     think you have little to worry about.
>     The default optimization in 'rugarch' is
>     reasonably good.  But there are options
>     to use different optimizers if you want to
>     check the quality of the optimum.
>     If you are talking about the second, then
>     that won't be an issue as long as you have
>     enough observations to make estimating a
>     garch model useful.  See:
>     http://www.portfolioprobe.com/2012/07/06/a-practical-introduction-to-garch-modeling/
>     Pat
>     On 04/10/2015 16:52, Samit Paul wrote:
>         Dear R users,
>         I am trying to estimate conditional mean and variance of a
>         financial return
>         series using UGARCHSPEC and UGARCHFIt function of "rugarch"
>         package. I am
>         trying to fit basic ARMA(1,1)-GARCH(1,1) with Student - t
>         distribution.
>         Now, I am not sure how the starting values are considered in
>         this case or
>         whether I need to set it manually. Since the starting value is very
>         important for the estimation purpose, there could be some robust
>         method for
>         calculation of the same.
>         Any help in this regard will be highly appreciated.
>         Regards,
>         Samit Paul
>                  [[alternative HTML version deleted]]
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>     --
>     Patrick Burns
>     patrick at burns-stat.com <mailto:patrick at burns-stat.com>
>     http://www.burns-stat.com
>     http://www.portfolioprobe.com/blog
>     twitter: @burnsstat @portfolioprobe

Patrick Burns
patrick at burns-stat.com
twitter: @burnsstat @portfolioprobe

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