Markov-Switching GARCH Models in R: The MSGARCH Package

29 Pages Posted: 2 Oct 2016 Last revised: 23 Jan 2017

David Ardia

University of Neuchatel - Institute of Financial Analysis; Laval University - D├ępartement de Finance et Assurance

Keven Bluteau

University of Neuchatel, Institute of Financial Analysis, Students; Vrije Universiteit Brussel (VUB)

Kris Boudt

Vrije Universiteit Brussel (VUB); VU University Amsterdam

Denis-Alexandre Trottier

Laval University

Date Written: September 30, 2016

Abstract

Markov-switching GARCH models have become popular to model the structural break in the conditional variance dynamics of financial time series. In this paper, we describe the R package MSGARCH which implements Markov-switching GARCH-type models very effficiently by using C object-oriented programming techniques. It allows the user to perform simulations as well as Maximum Likelihood and Bayesian estimation of a very large class of Markov-switching GARCH-type models. Risk management tools such as Value-at-Risk and Expected-Shortfall calculations are available. An empirical illustration of the usefulness of the R package MSGARCH is presented.

Keywords: GARCH, MSGARCH, Markov-switching, conditional volatility, risk management, R software

JEL Classification: C01, C24, C53, C58

Suggested Citation

Ardia, David and Bluteau, Keven and Boudt, Kris and Trottier, Denis-Alexandre, Markov-Switching GARCH Models in R: The MSGARCH Package (September 30, 2016). Available at SSRN: https://ssrn.com/abstract=2845809

David Ardia

University of Neuchatel - Institute of Financial Analysis ( email )

Rue A.-L. Breguet 2
Neuchatel, CH-2000
Switzerland

Laval University - D├ępartement de Finance et Assurance ( email )

Pavillon Palasis-Prince
Quebec G1K 7P4
Canada

Keven Bluteau (Contact Author)

University of Neuchatel, Institute of Financial Analysis, Students ( email )

Pierre-a-Mazel,7
Neuchatel
Switzerland

Vrije Universiteit Brussel (VUB) ( email )

Pleinlaan 2
http://www.vub.ac.be/
Brussels, 1050
Belgium

Kris Boudt

Vrije Universiteit Brussel (VUB) ( email )

Pleinlaan 2
http://www.vub.ac.be/
Brussels, 1050
Belgium

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Denis-Alexandre Trottier

Laval University ( email )

Pavillon Palasis-Prince
Quebec, Quebec G1K 7P4
Canada

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