Hi,

I am new to GARCH and I am trying to figure out how to use R's garchSim and
garch, and I am a bit confused. I am hopeing that R finance experts can help
me understand them better. If we look at the definition of GARCH(1,1),
there should be two equations:
[1]: Y(t) = c + e(t), and
[2]: sigma^2(t) = a0 + a1*e^2(t-1) + b1*sigma^2(t-1)

So, I would expect any garch simulation function to four parameters: c, a0,
a1, and b1. But take a look at the garchSim, it has only three parameters:
model = list(omega = 1.0e-6, alpha = 0.1, beta = 0.8). I assume here that
omega = a0 in [2], alpha=a1, and beta=b1. If so, then it seems that in
garchSim, c, the constant (or the mean) in [1], is always assumed to be
zero. Does anyone know if this is true? I just want to make sure that I
understand exactly what I should expect from the output of the garchSim
function.

Also, I have a similar question about garch. It seems that the coefficients
estimated by garch(x,order=c(1,1)) are a0, a1, and b1. Like garchSim, there
is no c, the mean. So does this mean garch also assumes zero mean and thus
actually fits model [2] instead of both [1] and [2]?

Thanks!

-- 
Tom

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