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Markov-Switching GARCH Models in R: The MSGARCH Package

34 Pages Posted: 2 Oct 2016 Last revised: 18 Nov 2017

David Ardia

University of Neuchatel - Institute of Financial Analysis; Laval University - Département 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

Leopoldo Catania

University of Aarhus - School of Business and Social Sciences

Denis-Alexandre Trottier

Laval University, Faculté d'Administration, Département de Finance et Assurance, Students

Date Written: September 20, 2016

Abstract

We describe the package MSGARCH, which implements Markov-switching GARCH models in R with efficient C object-oriented programming. Markov-switching GARCH models have become popular methods to account for regime changes in the conditional variance dynamics of time series. The package MSGARCH allows the user to perform simulations as well as Maximum Likelihood and MCMC/Bayesian estimations of a very large class of Markov-switching GARCH-type models. The package also provides methods to make single-step and multi-step ahead forecasts of the complete conditional density of the variable of interest. Risk management tools to estimate conditional volatility, Value-at-Risk and Expected Shortfall are also available. We illustrate the broad functionality of the MSGARCH package using exchange rate and stock market return data.

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

JEL Classification: C01, C24, C53, C58

Suggested Citation

Ardia, David and Bluteau, Keven and Boudt, Kris and Catania, Leopoldo and Trottier, Denis-Alexandre, Markov-Switching GARCH Models in R: The MSGARCH Package (September 20, 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 - Département 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

Leopoldo Catania

University of Aarhus - School of Business and Social Sciences ( email )

Fuglesangs Allé 4
Aarhus V, DK-8210
Denmark

Denis-Alexandre Trottier

Laval University, Faculté d'Administration, Département de Finance et Assurance, Students ( email )

Pavillon Palasis-Prince
Quebec, Quebec G1K 7P4
Canada

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