Score Permutation Based Finite Sample Inference for Generalized AutoRegressive Conditional Heteroskedasticity (GARCH) Models

Bal\'azs Csan\'ad Cs\'aji

Papers from arXiv.org

Abstract: A standard model of (conditional) heteroscedasticity, i.e., the phenomenon that the variance of a process changes over time, is the Generalized AutoRegressive Conditional Heteroskedasticity (GARCH) model, which is especially important for economics and finance. GARCH models are typically estimated by the Quasi-Maximum Likelihood (QML) method, which works under mild statistical assumptions. Here, we suggest a finite sample approach, called ScoPe, to construct distribution-free confidence regions around the QML estimate, which have exact coverage probabilities, despite no additional assumptions about moments are made. ScoPe is inspired by the recently developed Sign-Perturbed Sums (SPS) method, which however cannot be applied in the GARCH case. ScoPe works by perturbing the score function using randomly permuted residuals. This produces alternative samples which lead to exact confidence regions. Experiments on simulated and stock market data are also presented, and ScoPe is compared with the asymptotic theory and bootstrap approaches.

Date: 2018-07
New Economics Papers: this item is included in nep-ecm and nep-ets
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Published in Proceedings of Machine Learning Research, Volume 51, 2016, pp. 296-304

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