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Viterbi-Based Estimation for Markov Switching GARCH Model

Viterbi-Based Estimation for Markov Switching GARCH Model Abstract We outline a two-stage estimation method for a Markov-switching Generalized Autoregressive Conditional Heteroscedastic (GARCH) model modulated by a hidden Markov chain. The first stage involves the estimation of a hidden Markov chain using the Vitberi algorithm given the model parameters. The second stage uses the maximum likelihood method to estimate the model parameters given the estimated hidden Markov chain. Applications to financial risk management are discussed through simulated data. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Applied Mathematical Finance Taylor & Francis

Viterbi-Based Estimation for Markov Switching GARCH Model

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Viterbi-Based Estimation for Markov Switching GARCH Model

Abstract

Abstract We outline a two-stage estimation method for a Markov-switching Generalized Autoregressive Conditional Heteroscedastic (GARCH) model modulated by a hidden Markov chain. The first stage involves the estimation of a hidden Markov chain using the Vitberi algorithm given the model parameters. The second stage uses the maximum likelihood method to estimate the model parameters given the estimated hidden Markov chain. Applications to financial risk management are discussed through...
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Publisher
Taylor & Francis
Copyright
Copyright Taylor & Francis Group, LLC
ISSN
1466-4313
eISSN
1350-486X
DOI
10.1080/1350486X.2011.620396
Publisher site
See Article on Publisher Site

Abstract

Abstract We outline a two-stage estimation method for a Markov-switching Generalized Autoregressive Conditional Heteroscedastic (GARCH) model modulated by a hidden Markov chain. The first stage involves the estimation of a hidden Markov chain using the Vitberi algorithm given the model parameters. The second stage uses the maximum likelihood method to estimate the model parameters given the estimated hidden Markov chain. Applications to financial risk management are discussed through simulated data.

Journal

Applied Mathematical Finance – Taylor & Francis

Published: Jul 1, 2012

Keywords: volatility; regime switching; GARCH; Viterbi algorithm; reference probability; filter; maximum likelihood estimation; value at risk

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