How to fit ARMA+GARCH Model In R?
I am currently working on ARMA+GARCH model using R. I am looking out for example which explain step by step explanation for fitting this model in R. I have time series which is stationary and I am trying to predict n period ahead value.
I have worked on this model but I am looking out for example where auto.arima() function is used for selecting best ARMA(p,q) based on AIC value.
I am not sure you will find a detailed example. Do you know the R package fgarch ? The garchFit() function might be useful for your task at hand http://cran.r-project.org/web/packages/fGarch/fGarch.pdf
the link here has auto.arima() doumentation http://cran.r-project.org/web/packages/forecast/forecast.pdf
I don't know how to select ARMA lag length when doing ARMA-GARCH. Perhaps someone can edit it into this answer.
For the univariate case you want
rugarchpackage. If you're doing multivariate stuff you want
rmgarch. The reason these are better than other packages is threefold; (i) Support for exogenous variables which I haven't seen in any other package, (ii) support for dynamic conditional correlations, (iii) support for a huge multitude of fGARCH variants.
Let's construct the data to be used as an example. Using $N(0,1)$ will give strange results when you try to use GARCH over it but it's just an example.
data <- rnorm(1000)
We can then compute the ARMA(1,1)-GARCH(1,1) model as an example:
spec <- ugarchspec(variance.model = list(model = "sGARCH", garchOrder = c(1, 1), submodel = NULL, external.regressors = NULL, variance.targeting = FALSE), mean.model = list(armaOrder = c(1, 1), external.regressors = NULL, distribution.model = "norm", start.pars = list(), fixed.pars = list())) garch <- ugarchfit(spec = spec, data = data, solver.control = list(trace=0))
Retrieve ARMA(1,1) and GARCH(1,1) coefficients:
Retrieve time-varying standard deviation:
Retrieve standardized $N(0,1)$ ARMA(1,1) disturbances:
See what else you can pull out of the fit:
This should walk you through what you are looking for:
Hi Chris J, welcome to Quant.SE! Could you please edit your answer so it stands on its own? These links on their own, while useful, do not make a good answer.
I do appreciate that and I believe we need to think about the future. What if these pages go away?
I saw the question in your weekly newsletter and I instantly knew the links could help solve the problem. I can't leave a comment caus I don't have enough points or whatever. I'm sure the links will be very helpful for whoever looks this up in the future. I'm more focused on the end result than the nomenclature. I'm a trader that can code, not the other way around.
Here is a example of fitting Garch on financial time series. Application for regime switching in trading.