Markov switching component GARCH model: stability and forecasting
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Markov chains (discrete-time Markov processes on discrete state spaces) (60J10) Applications of Markov chains and discrete-time Markov processes on general state spaces (social mobility, learning theory, industrial processes, etc.) (60J20) Bayesian inference (62F15) Time series, auto-correlation, regression, etc. in statistics (GARCH) (62M10) Probabilistic models, generic numerical methods in probability and statistics (65C20) Numerical methods (including Monte Carlo methods) (91G60)
Abstract: This paper introduces an extension of the Markov switching GARCH model where the volatility in each state is a convex combination of two different GARCH components with time varying weights. This model has the dynamic behavior to capture the variants of shocks. The asymptotic behavior of the second moment is investigated and an appropriate upper bound for it is evaluated. The estimation of the parameters by using the Bayesian method via Gibbs sampling algorithm is studied. Finally we illustrate the efficiency of the model by simulation and empirical analysis. We show that this model provides a much better forecast of the volatility than the Markov switching GARCH model.
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Cites work
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Cited in
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- Performance of MS-GARCH Models: Bayesian MCMC-Based Estimation
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- Relative forecasting performance of volatility models: Monte Carlo evidence
- Nonparametric Regression in Proportional Hazards Models
- A component Markov regime‐switching autoregressive conditional range model
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