Regular variation of GARCH processes.
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financeGARCHheavy tailMarkov chainmixing conditionmultivariate regular variationpoint processsample autocorrelationsample autocovariancestationary processvague convergence
Stationary stochastic processes (60G10) Point processes (e.g., Poisson, Cox, Hawkes processes) (60G55) Asymptotic properties of nonparametric inference (62G20) Time series, auto-correlation, regression, etc. in statistics (GARCH) (62M10) Applications of statistics to actuarial sciences and financial mathematics (62P05)
Let a \(d\)-dimensional time series \(({\mathbf X}_t)\) be defined by a stochastic recurrence equation (SRE) \({\mathbf X}_t={\mathbf A}_t{\mathbf X}_{t-1}+{\mathbf B}_t\) where \({\mathbf A}_t\) are \(d\times d\) random matrices and \({\mathbf B}_t\) are \(d\)-dimensional vectors such that \((({\mathbf A}_t,{\mathbf B}_t))\) is an iid sequence. A generalized autoregressive conditionally heteroscedastic process \((X_t)\) of order \((p,q)\) (GARCH\((p,q)\)) is given by \(X_t=\sigma _t Z_t\), \(\sigma _t^2=\alpha _0+\sum _{i=1}^p \alpha _i X_{t-i}^2 + \sum _{j=1}^q \beta _j\sigma _{t-j}^2\) where \((Z_t)\) is an iid sequence and \(\alpha _i\)'s, \(\beta _j\)'s are nonnegative constants. The squared processes \((X_t^2)\) and \((\sigma _t^2)\) satisfy a SRE \({\mathbf X}_t={\mathbf A}_t{\mathbf X}_{t-1}+{\mathbf B}_t\) with \({\mathbf X}_t=(\sigma _{t+1}^2,\dots ,\sigma _{t-q+2}^2, X_t^2, \dots , X_{t-p+2}^2)'\). The authors start with some introduction to basic theory for SRE. This part is a valuable review of results concerning SRE. Using the connection between GARCH and SRE the authors show that the finite-dimensional distributions of a GARCH process are regularly varying. This implies the moment properties of the process and the dependence structure between neighboring observations. Regular variation enables to establish the large sample behavior of statistics from GARCH process such as the sample mean, sample autocovariance and sample autocorrelation function. For example, if the fourth moment of the process does not exist, then the rate of convergence of the sample autocorrelations is extremely slow.
Recommendations
- Regular variation and related results for the multivariate GARCH(p,q) model with constant conditional correlations
- scientific article; zbMATH DE number 2152219
- Limit theory for the sample autocorrelations and extremes of a GARCH \((1,1)\) process.
- On the distributional properties of GARCH processes
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