ARCH and GARCH Models: Quasi-Likelihood and Asymptotic Quasi-Likelihood Approaches

Raed Alzghool

A chapter in Linear and Non-Linear Financial Econometrics -Theory and Practice from IntechOpen

Abstract: This chapter considers estimation of autoregressive conditional heteroscedasticity (ARCH) and the generalized autoregressive conditional heteroscedasticity (GARCH) models using quasi-likelihood (QL) and asymptotic quasi-likelihood (AQL) approaches. The QL and AQL estimation methods for the estimation of unknown parameters in ARCH and GARCH models are developed. Distribution assumptions are not required of ARCH and GARCH processes by QL method. Nevertheless, the QL technique assumes knowing the first two moments of the process. However, the AQL estimation procedure is suggested when the conditional variance of process is unknown. The AQL estimation substitutes the variance and covariance by kernel estimation in QL. Reports of simulation outcomes, numerical cases, and applications of the methods to daily exchange rate series and weekly prices' changes of crude oil are presented.

Keywords: ARCH model; GARCH model; the quasi-likelihood; asymptotic quasi-likelihood; martingale difference; daily exchange rate series; prices changes of crude oil (search for similar items in EconPapers)
JEL-codes: C01 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ito:pchaps:215984

DOI: 10.5772/intechopen.93726

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