Analytic Hessian matrices and the computation of FIGARCH estimates

Marco Lombardi and Giampiero Gallo ()

Statistical Methods & Applications, 2002, vol. 11, issue 2, No 9, 247-264

Abstract: Abstract Long memory in conditional variance is one of the empirical features exhibited by many financial time series. One class of models that was suggested to capture this behavior is the so-called Fractionally Integrated GARCH (Baillie, Bollerslev and Mikkelsen 1996) in which the ideas of fractional integration originally introduced by Granger (1980) and Hosking (1981) for processes for the mean are applied to a GARCH framework. In this paper we derive analytic expressions for the second-order derivatives of the log-likelihood function of FIGARCH processes with a view to the advantages that can be gained in computational speed and estimation accuracy. The comparison is computationally intensive given the typical sample size of the time series involved and the way the likelihood function is built. An illustration is provided on exchange rate and stock index data.

Keywords: Conditional Variance; GARCH Model; Outer Product; Financial Time Series; Spot Exchange Rate (search for similar items in EconPapers)
Date: 2002
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DOI: 10.1007/BF02511490

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