Efficient Bayesian estimation for GARCH-type models via Sequential Monte Carlo

Dan Li, Adam Clements and Christopher Drovandi

Econometrics and Statistics, 2021, vol. 19, issue C, 22-46

Abstract: The advantages of sequential Monte Carlo (SMC) are exploited to develop parameter estimation and model selection methods for GARCH (Generalized AutoRegressive Conditional Heteroskedasticity) style models. It provides an alternative method for quantifying estimation uncertainty relative to classical inference. Even with long time series, it is demonstrated that the posterior distribution of model parameters are non-normal, highlighting the need for a Bayesian approach and an efficient posterior sampling method. Efficient approaches for both constructing the sequence of distributions in SMC, and leave-one-out cross-validation, for long time series data are also proposed. Finally, an unbiased estimator of the likelihood is developed for the Bad Environment-Good Environment model, a complex GARCH-type model, which permits exact Bayesian inference not previously available in the literature.

Keywords: Markov chain Monte Carlo; Time series analysis; Volatility distribution; Cross-validation; Data annealing (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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Working Paper: Efficient Bayesian estimation for GARCH-type models via Sequential Monte Carlo (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosta:v:19:y:2021:i:c:p:22-46

DOI: 10.1016/j.ecosta.2020.02.002

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