## GARCH with ARMA mean equation

Discussions of ARCH, GARCH, and related models

### GARCH with ARMA mean equation

Hi. Could you please look and see what is wrong in the following code? It gives an error in both estimation and rolling process:

Code: Select all
`OPEN DATA "C:\Documents and Settings\admin\Desktop\FINAL - Daily.RAT"CALENDAR(D) 2006:1:4DATA(FORMAT=RATS) 2006:01:04 2010:11:26 RT*** Estimating GARCHgarch(p=1,q=1,reg,resids=u,hseries=h) 2 506 rt# constant rt{1} u{1}***Rolling GARCHcompute width=505dec vect[series] coeffs(6)do gend=width,1278   if gend==width      garch(p=1,q=1,reg,resids=u,hseries=h,noprint) gend-width+2 gend rt      # constant rt{1} u{1}   else      garch(p=1,q=1,reg,resids=u,hseries=h,initial=%beta,hessian=%xx,noprint) gend-width+2 gend rt      # constant rt{1} u{1}   compute %pt(coeffs,gend,%beta)end do gend`

In both cases the error is: "## SR10. Missing Values And/Or SMPL Options Leave No Usable Data Points". I can't understand why that happens.

Farid

Posts: 19
Joined: Sun Jun 05, 2011 9:02 pm

### Re: GARCH with ARMA mean equation

Do

SET U = 0.0

before the GARCH instruction. The GARCH defines U from entry 2, but you need some value for U{1} when T=2.
TomDoan

Posts: 2726
Joined: Wed Nov 01, 2006 5:36 pm

### Re: GARCH with ARMA mean equation

Thanks Tom. Is it a correct way to estimate and forecast ARMA-GARCH? The reason why I'm asking - because now I did what you said, but the program is too slow in implementing the instruction and it's even frozen.
Farid

Posts: 19
Joined: Sun Jun 05, 2011 9:02 pm

### Re: GARCH with ARMA mean equation

You should be using %MVGAVGE{1} (not U{1}) in the regressor lists. You may be running into numerical problems by estimating an ARMA(1,1) on a series which might be closer to white noise. If it is WN, the ARMA parameters aren't identified. You should probably have either the AR or the MA but not both.
TomDoan

Posts: 2726
Joined: Wed Nov 01, 2006 5:36 pm