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

[Samit Paul]

Thanks a lot Pat and Alexios,

The explanations and insights shared by you are really helpful for me to
develop my understanding.

I sincerely appreciate your time and effort.

Best regards,

Samit Paul

On Mon, Oct 5, 2015 at 4:47 PM, alexios galanos <alexios at 4dscape.com> wrote:

> A few years ago, on the suggestion of Pat, I implemented an option
> which allows to choose whether to use all the data for the initialization
> of the variance recursion or some other value e.g. for exponential
> smoothing
> backast. This can be found in the fit.control option (of ugarchfit) under
> 'rec.init':
>
> From the documentation:
>
> "The rec.init option determines the type of initialization for the
> variance recursion.
> Valid options are ‘all’ which uses all the values for the unconditional
> variance
> calculation, an integer greater than or equal to 1 denoting the number
> of data
> points to use for the calculation, or a positive numeric value less than
> one
> which determines the weighting for use in an exponential smoothing
> backcast."
>
> This is only for the variance recursion initialization, and not the
> conditional mean.
>
> Best,
>
> Alexios
>
> On 05/10/2015 01:49, Patrick Burns wrote:
> > 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.
> >
> > Pat
> >
> > 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]]
> >>
> >>         _______________________________________________
> >>         R-SIG-Finance at r-project.org <mailto:R-SIG-Finance at r-project.org
> >
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> >>         -- Also note that this is not the r-help list where general R
> >>         questions should go.
> >>
> >>
> >>     --
> >>     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
> >>
> >>
> >
>
>

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