Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 516: An application of the analogy between vector ARCH and vector random coefficient autoregressive models

Changli He () and Timo Teräsvirta ()
Additional contact information
Changli He: Dept. of Economic Statistics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Timo Teräsvirta: Dept. of Economic Statistics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden

Abstract: In this paper we derive conditions for the conditional covariance matrix to be positive definite in a general vector ARCH model. The conditions can be easily extended to the diagonal vector GARCH model. For the general vector GARCH model, analytical expressions for the conditions in terms of the parameters become complicated, but their validity can in principle be checked numerically once the values of the parameters are given.

Keywords: conditional covariance matrix; multivariate GARCH; multivariate volatility model; random coefficient model; volatility forecasting

JEL-codes: C32

15 pages, November 20, 2002

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