A NEW MULTIVARIATE NONLINEAR MODEL TO HANDLE THE VOLATILITY TRANSMISSION

Seyed Babak Ebrahimi, Fahime Rouhiolyaee

Abstract


Price volatility of stocks is an important issue in stock markets. It should also be taken into account that the stochastic nature of volatility affects decision-makers’ minds to a great extent. Therefore, predicting price volatility could help them make proper decisions. In this paper, a new multivariate fractionally integrated generalised autoregressive conditional heteroscedasticity (MFIGARCH) model is proposed to handle the price volatility in stocks. In this model, a long-term parameter is considered and estimated along with other parameters. In estimating the parameters of this nonlinear model, the maximum likelihood estimation method, which could be solved by standard econometric packages, is applied. However, these packages are no longer efficient when the size of the model increases. Thus meta-heuristic approaches, which stochastically seek optimal or near-optimal solutions, were used. In this paper, the well-known Particle Swarm Optimisation (PSO) meta-heuristic method is used for solving the suggested multivariate FIGARCH model. Hence the main objective of this paper is to introduce a new model for addressing the stock price volatility (i.e., the development of FIGARCH to create the MFIGARCH model) and to apply an efficient estimation method (i.e. PSO) for finding the parameters of the problem. 


Keywords


time series; nonlinear model; Particle swarm optimization (PSO); BEKK model; GARCH

Full Text:

PDF


DOI: https://doi.org/10.7166/25-3-821

Refbacks

  • There are currently no refbacks.




Copyright (c) 2015 The South African Journal of Industrial Engineering


ISSN 2224-7890 (on-line) ; ISSN 1012-277X (print)


Powered by OJS and hosted by Stellenbosch University Library and Information Service since 2011.


Disclaimer:

This journal is hosted by the SU LIS on request of the journal owner/editor. The SU LIS takes no responsibility for the content published within this journal, and disclaim all liability arising out of the use of or inability to use the information contained herein. We assume no responsibility, and shall not be liable for any breaches of agreement with other publishers/hosts.

SUNJournals Help