Markov Switching GARCH Models: Filtering, Approximations and Duality

Monica Billio and Maddalena Cavicchioli ()
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Maddalena Cavicchioli: University of Verona, Department of Economics

A chapter in Mathematical and Statistical Methods for Actuarial Sciences and Finance, 2017, pp 59-72 from Springer

Abstract: Abstract This paper is devoted to show duality in the estimation of Markov Switching (MS) GARCH processes. It is well-known that MS GARCH models suffer of path dependence which makes the estimation step unfeasible with usual Maximum Likelihood procedure. However, by rewriting the model in a suitable state space representation, we are able to give a unique framework to reconcile the estimation obtained by filtering procedure with that coming from some auxiliary models proposed in the literature. Estimation on short-term interest rates shows the feasibility of the proposed approach.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-319-50234-2_5

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DOI: 10.1007/978-3-319-50234-2_5

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