×

zbMATH — the first resource for mathematics

Tree-structured generalized autoregressive conditional heteroscedastic models. (English) Zbl 0986.62067
Summary: We propose a new generalized autoregressive conditional heteroscedastic (GARCH) model with tree-structured multiple thresholds for the estimation of volatility in financial time series. The approach relies on the idea of a binary tree where every terminal node parametrizes a (local) GARCH model for a partition cell of the predictor space. The fitting of such trees is constructed within the likelihood framework for non-Gaussian observations: it is very different from the well-known regression tree procedure which is based on residual sums of squares. Our strategy includes the classical GARCH model as a special case and allows us to increase model complexity in a systematic and flexible way. We derive a consistency result and conclude from simulation and real data analysis that the new method has better predictive potential than other approaches.

MSC:
62M10 Time series, auto-correlation, regression, etc. in statistics (GARCH)
62P05 Applications of statistics to actuarial sciences and financial mathematics
PDF BibTeX XML Cite
Full Text: DOI