Quasi-maximum-likelihood estimation in conditionally heteroscedastic time series: A stochastic recurrence equations approach

Abstract

This paper studies the quasi-maximum-likelihood estimator (QMLE) in a general conditionally heteroscedastic time series model of multiplicative form $X_t={\sigma }_t{Z}_t$, where the unobservable volatility ${\sigma }_t$ is a parametric function of $(X_{t-1},...,X_{t-p},{\sigma }_{t-1},...,{\sigma }_{t-q})$ for some $p,q\ge 0$, and $(Z_t)$ is standardized i.i.d. noise. We assume that these models are solutions to stochastic recurrence equations which satisfy a contraction (random Lipschitz coefficient) property. These assumptions are satisfied for the popular GARCH, asymmetric GARCH and exponential GARCH processes. Exploiting the contraction property, we give conditions for the existence and uniqueness of a strictly stationary solution $(X_t)$ to the stochastic recurrence equation and establish consistency and asymptotic normality of the QMLE. We also discuss the problem of invertibility of such time series models.

Published at http://dx.doi.org/10.1214/009053606000000803 in the Annals of Statistics (http://www.imstat.org/aos/) by the Institute of Mathematical Statistics (http://www.imstat.org)

References in corpus (1)

• Stable limits of martingale transforms with application to the estimation of GARCH parameters

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