Specify EGARCH Models Using egarch

Default EGARCH Model

The default EGARCH(P,Q) model in Econometrics Toolbox™ is of the form

εt=σtzt,

with Gaussian innovation distribution and

logσt2=κ+i=1Pγilogσti2+j=1Qαj[|εtj|σtjE{|εtj|σtj}]+j=1Qξj(εtjσtj).

The default model has no mean offset, and the lagged log variances and standardized innovations are at consecutive lags.

You can specify a model of this form using the shorthand syntax egarch(P,Q). For the input arguments P and Q, enter the number of lagged log variances (GARCH terms), P, and lagged standardized innovations (ARCH and leverage terms), Q, respectively. The following restrictions apply:

  • P and Q must be nonnegative integers.

  • If P > 0, then you must also specify Q > 0.

When you use this shorthand syntax, egarch creates an egarch model with these default property values.

PropertyDefault Value
PNumber of GARCH terms, P
QNumber of ARCH and leverage terms, Q
Offset0
ConstantNaN
GARCHCell vector of NaNs
ARCHCell vector of NaNs
LeverageCell vector of NaNs
Distribution'Gaussian'

To assign nondefault values to any properties, you can modify the created model using dot notation.

To illustrate, consider specifying the EGARCH(1,1) model

εt=σtzt,

with Gaussian innovation distribution and

logσt2=κ+γ1logσt12+α1[|εt1|σt1E{|εt1|σt1}]+ξ1(εt1σt1).

Mdl = egarch(1,1)
Mdl = 

    EGARCH(1,1) Conditional Variance Model:
    -----------------------------------------  
    Distribution: Name = 'Gaussian'
               P: 1
               Q: 1
        Constant: NaN
           GARCH: {NaN} at Lags [1]
            ARCH: {NaN} at Lags [1]
        Leverage: {NaN} at Lags [1]

The created model, Mdl, has NaNs for all model parameters. A NaN value signals that a parameter needs to be estimated or otherwise specified by the user. All parameters must be specified to forecast or simulate the model

To estimate parameters, input the model (along with data) to estimate. This returns a new fitted egarch model. The fitted model has parameter estimates for each input NaN value.

Calling egarch without any input arguments returns an EGARCH(0,0) model specification with default property values:

DefaultMdl = egarch
DefaultMdl = 

    EGARCH(0,0) Conditional Variance Model:
    -----------------------------------------  
    Distribution: Name = 'Gaussian'
               P: 0
               Q: 0
        Constant: NaN
           GARCH: {}
            ARCH: {}
        Leverage: {}

Use Name-Value Pairs

The most flexible way to specify EGARCH models is using name-value pair arguments. You do not need, nor are you able, to specify a value for every model property. egarch assigns default values to any model properties you do not (or cannot) specify.

The general EGARCH(P,Q) model is of the form

yt=μ+εt,

where εt=σtzt and

logσt2=κ+i=1Pγilogσti2+j=1Qαj[|εtj|σtjE{|εtj|σtj}]+j=1Qξj(εtjσtj).

The innovation distribution can be Gaussian or Student's t. The default distribution is Gaussian.

In order to estimate, forecast, or simulate a model, you must specify the parametric form of the model (e.g., which lags correspond to nonzero coefficients, the innovation distribution) and any known parameter values. You can set any unknown parameters equal to NaN, and then input the model to estimate (along with data) to get estimated parameter values.

egarch (and estimate) returns a model corresponding to the model specification. You can modify models to change or update the specification. Input models (with no NaN values) to forecast or simulate for forecasting and simulation, respectively. Here are some example specifications using name-value arguments.

ModelSpecification
  • yt=εt

  • εt=σtzt

  • zt Gaussian

  • logσt2=κ+γ1logσt12+α1[|εt1|σt1E{|εt1|σt1}]+ξ1(εt1σt1)

egarch('GARCH',NaN,'ARCH',NaN,...
'Leverage',NaN)
or egarch(1,1)
  • yt=μ+εt

  • εt=σtzt

  • zt Student's t with unknown degrees of freedom

  • logσt2=κ+γ1logσt12+α1[|εt1|σt1E{|εt1|σt1}]+ξ1(εt1σt1)

egarch('Offset',NaN,'GARCH',NaN,...
'ARCH',NaN,'Leverage',NaN,...
'Distribution','t')
  • yt=εt

  • εt=σtzt

  • zt Student's t with eight degrees of freedom

  • logσt2=0.1+0.4logσt12+0.3[|εt1|σt1E{|εt1|σt1}]0.1(εt1σt1)

egarch('Constant',-0.1,'GARCH',0.4,...
'ARCH',0.3,'Leverage',-0.1,...
'Distribution',struct('Name','t','DoF',8))

Here is a full description of the name-value arguments you can use to specify EGARCH models.

    Note:   You cannot assign values to the properties P and Q. egarch sets P equal to the largest GARCH lag, and Q equal to the largest lag with a nonzero standardized innovation coefficient, including ARCH and leverage coefficients.

Name-Value Arguments for EGARCH Models

NameCorresponding EGARCH Model Term(s)When to Specify
OffsetMean offset, μTo include a nonzero mean offset. For example, 'Offset',0.2. If you plan to estimate the offset term, specify 'Offset',NaN.
By default, Offset has value 0 (meaning, no offset).
ConstantConstant in the conditional variance model, κTo set equality constraints for κ. For example, if a model has known constant –0.1, specify 'Constant',-0.1.
By default, Constant has value NaN.
GARCHGARCH coefficients, γ1,,γPTo set equality constraints for the GARCH coefficients. For example, to specify an EGARCH(1,1) model with γ1=0.6, specify 'GARCH',0.6.
You only need to specify the nonzero elements of GARCH. If the nonzero coefficients are at nonconsecutive lags, specify the corresponding lags using GARCHLags.
Any coefficients you specify must satisfy all stationarity constraints.
GARCHLagsLags corresponding to nonzero GARCH coefficientsGARCHLags is not a model property.
Use this argument as a shortcut for specifying GARCH when the nonzero GARCH coefficients correspond to nonconsecutive lags. For example, to specify nonzero GARCH coefficients at lags 1 and 3, e.g., nonzero γ1 and γ3, specify 'GARCHLags',[1,3].
Use GARCH and GARCHLags together to specify known nonzero GARCH coefficients at nonconsecutive lags. For example, if γ1=0.3 and γ3=0.1, specify 'GARCH',{0.3,0.1},'GARCHLags',[1,3]
ARCHARCH coefficients, α1,,αQTo set equality constraints for the ARCH coefficients. For example, to specify an EGARCH(1,1) model with α1=0.3, specify 'ARCH',0.3.
You only need to specify the nonzero elements of ARCH. If the nonzero coefficients are at nonconsecutive lags, specify the corresponding lags using ARCHLags.
ARCHLagsLags corresponding to nonzero ARCH coefficientsARCHLags is not a model property.
Use this argument as a shortcut for specifying ARCH when the nonzero ARCH coefficients correspond to nonconsecutive lags. For example, to specify nonzero ARCH coefficients at lags 1 and 3, e.g., nonzero α1 and α3,

specify 'ARCHLags',[1,3].


Use ARCH and ARCHLags together to specify known nonzero ARCH coefficients at nonconsecutive lags. For example, if α1=0.4 and α3=0.2, specify 'ARCH',{0.4,0.2},'ARCHLags',[1,3]
LeverageLeverage coefficients, ξ1,,ξQTo set equality constraints for the leverage coefficients. For example, to specify an EGARCH(1,1) model with ξ1=0.1, specify 'Leverage',-0.1.
You only need to specify the nonzero elements of Leverage. If the nonzero coefficients are at nonconsecutive lags, specify the corresponding lags using LeverageLags.
LeverageLagsLags corresponding to nonzero leverage coefficientsLeverageLags is not a model property.
Use this argument as a shortcut for specifying Leverage when the nonzero leverage coefficients correspond to nonconsecutive lags. For example, to specify nonzero leverage coefficients at lags 1 and 3, e.g., nonzero ξ1 and ξ3,

specify 'LeverageLags',[1,3].


Use Leverage and LeverageLags together to specify known nonzero leverage coefficients at nonconsecutive lags. For example, if ξ1=0.2 and ξ3=0.1, specify 'Leverage',{-0.2,-0.1},'LeverageLags',[1,3].
DistributionDistribution of the innovation processUse this argument to specify a Student's t innovation distribution. By default, the innovation distribution is Gaussian.
For example, to specify a t distribution with unknown degrees of freedom, specify 'Distribution','t'.
To specify a t innovation distribution with known degrees of freedom, assign Distribution a data structure with fields Name and DoF. For example, for a t distribution with nine degrees of freedom, specify 'Distribution',struct('Name','t','DoF',9).

See Also

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