Constrained nonlinear programming for volatility estimation with GARCH models
Date
Authors
Editor(s)
Advisor
Supervisor
Co-Advisor
Co-Supervisor
Instructor
BUIR Usage Stats
views
downloads
Series
Abstract
This paper proposes a constrained nonlinear programming view of generalized autoregressive conditional heteroskedasticity (GARCH) volatility estimation models in financial econometrics. These models are usually presented to the reader as unconstrained optimization models with recursive terms in the literature, whereas they actually fall into the domain of nonconvex nonlinear programming. Our results demonstrate that constrained nonlinear programming is a worthwhile exercise for GARCH models, especially for the bivariate and trivariate cases, as they offer a significant improvement in the quality of the solution of the optimization problem over the diagonal VECH and the BEKK representations of the multivariate GARCH model.