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Please use this identifier to cite or link to this item: https://dspace.lboro.ac.uk/2134/21533

Title: On the choice of GARCH parameters for efficient modelling of real stock price dynamics
Authors: Pokhilchuk, K.A.
Savel'ev, Sergey
Keywords: GARCH
Volatility
Higher-order moments
Fourier analysis
Issue Date: 2016
Publisher: © Elsevier
Citation: POKHILCHUK, K.A. and SAVEL'EV, S., 2016. On the choice of GARCH parameters for efficient modelling of real stock price dynamics. Physica A-Statistical Mechanics and its Applications, 448, pp. 248 - 253.
Abstract: We propose two different methods for optimal choice of GARCH(1,1) parameters for the efficient modelling of stock prices by using a particular return series. Using (as an example) stock return data for Intel Corporation, we vary parameters to fit the average volatility as well as fourth (linked to kurtosis of data) and eighth statistical moments and observe pure convergence of our simulated eighth moment to the stock data. Results indicate that fitting higher-order moments of a return series might not be an optimal approach for choosing GARCH parameters. In contrast, the simulated exponent of the Fourier spectrum decay is much less noisy and can easily fit the corresponding decay of the empirical Fourier spectrum of the used return series of Intel stock, allowing us to efficiently define all GARCH parameters. We compare the estimates of GARCH parameters obtained by fitting price data Fourier spectra with the ones obtained from standard software packages and conclude that the obtained estimates here are deeper in the stability region of parameters. Thus, the proposed method of using Fourier spectra of stock data to estimate GARCH parameters results in a more robust and stable stochastic process but with a shorter characteristic autocovariance time.
Description: This paper is closed access.
Sponsor: The second author acknowledges support from the Leverhulme Foundation
Version: Published
DOI: 10.1016/j.physa.2015.12.046
URI: https://dspace.lboro.ac.uk/2134/21533
Publisher Link: http://dx.doi.org/10.1016/j.physa.2015.12.046
ISSN: 0378-4371
Appears in Collections:Closed Access (Physics)

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