A NEW MULTIVARIATE NONLINEAR MODEL TO HANDLE THE VOLATILITY TRANSMISSION

Authors

  • Seyed Babak Ebrahimi Assistant Professor at the Department of Industrial Engineering, K.N.Toosi University of Technology, Tehran,Ira
  • Fahime Rouhiolyaee Iran University of Science and Technology

DOI:

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

Keywords:

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

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. 

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Author Biographies

Seyed Babak Ebrahimi, Assistant Professor at the Department of Industrial Engineering, K.N.Toosi University of Technology, Tehran,Ira

Department of industrial engineering, rank 1 in iran

Fahime Rouhiolyaee, Iran University of Science and Technology

Department of industrial engineering, rank 1 in iran

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Published

2014-11-10

How to Cite

Ebrahimi, S. B., & Rouhiolyaee, F. (2014). A NEW MULTIVARIATE NONLINEAR MODEL TO HANDLE THE VOLATILITY TRANSMISSION. The South African Journal of Industrial Engineering, 25(3), 140–153. https://doi.org/10.7166/25-3-821

Issue

Vol. 25 No. 3 (2014)

Section

General Articles

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