Efficient Gibbs Sampling for Markov Switching GARCH Models

We develop efficient simulation techniques for Bayesian inference on switching GARCH models. Our contribution to existing literature is manifold. First, we discuss different multi-move sampling techniques for Markov Switching (MS) state space models with particular attention to MS-GARCH models. Our multi-move sampling strategy is based on the Forward Filtering Backward Sampling (FFBS) applied to an approximation of MS-GARCH. Another important contribution is the use of multi-point samplers, such as the Multiple-Try Metropolis (MTM) and the Multiple trial Metropolize Independent Sampler, in combination with FFBS for the MS-GARCH process. In this sense we ex- tend to the MS state space models the work of So [2006] on efficient MTM sampler for continuous state space models. Finally, we suggest to further improve the sampler efficiency by introducing the antithetic sampling of Craiu and Meng [2005] and Craiu and Lemieux [2007] within the FFBS. Our simulation experiments on MS-GARCH model show that our multi-point and multi-move strategies allow the sampler to gain efficiency when compared with single-move Gibbs sampling.Comment: 38 pages, 7 figure

Bayesian nonparametric panel Markov-switching GARCH models

This article proposes Bayesian nonparametric inference for panel Markov-switching GARCH models. The model incorporates series-specific hidden Markov chain processes that drive the GARCH parameters. To cope with the high-dimensionality of the parameter space, the article assumes soft parameter pooling through a hierarchical prior distribution and introduces cross sectional clustering through a Bayesian nonparametric prior distribution. An MCMC posterior approximation algorithm is developed and its efficiency is studied in simulations under alternative settings. An empirical application to financial returns data in the United States is offered with a portfolio performance exercise based on forecasts. A comparison shows that the Bayesian nonparametric panel Markov-switching GARCH model provides good forecasting performances and economic gains in optimal asset allocation

Bayesian nonparametric panel Markov-switching GARCH models

This paper introduces a new model for panel data with Markov-switching GARCH effects. The model incorporates a series-specific hidden Markov chain process that drives the GARCH parameters. To cope with the high-dimensionality of the parameter space, the paper exploits the cross-sectional clustering of the series by first assuming a soft parameter pooling through a hierarchical prior distribution with two-step procedure, and then introducing clustering effects in the parameter space through a nonparametric prior distribution. The model and the proposed inference are evaluated through a simulation experiment. The results suggest that the inference is able to recover the true value of the parameters and the number of groups in each regime. An empirical application to 78 assets of the SP&100 index from $6^{th}$ January 2000 to $3^{rd}$ October 2020 is also carried out by using a two-regime Markov switching GARCH model. The findings shows the presence of 2 and 3 clusters among the constituents in the first and second regime, respectively

Empirical Characterization of the Temporal Dynamics of EEG Spectral Components

The properties of time-domain electroencephalographic data have been studied extensively. There has however been no attempt to characterize the temporal evolution of resulting spectral components when successive segments of electroencephalographic data are decomposed. We analysed resting-state scalp electroencephalographic data from 23 subjects, acquired at 256 Hz, and transformed using 64-point Fast Fourier Transform with a Hamming window. KPSS and Nason tests were administered to study the trend- and wide sense stationarity respectively of the spectral components. Their complexities were estimated using fuzzy entropy. Thereafter, the rosenstein algorithm for dynamic evolution was applied to determine the largest Lyapunov exponents of each component’s temporal evolution. We found that the evolutions were wide sense stationary for time scales up to 8 s, and had significant interactions, especially between spectral series in the frequency ranges 0-4 Hz, 12-24 Hz, and 32-128 Hz. The highest complexity was in the 12-24 Hz band, and increased monotonically with scale for all band sizes. However, the complexity in higher frequency bands changed more rapidly. The spectral series were generally non-chaotic, with average largest Lyapunov exponent of 0. The results show that significant information is contained in all frequency bands, and that the interactions between bands are complicated and time-varying

Empirical Characterization of the Temporal Dynamics of EEG Spectral Components

The properties of time-domain electroencephalographic data have been studied extensively. There has however been no attempt to characterize the temporal evolution of resulting spectral components when successive segments of electroencephalographic data are decomposed. We analysed resting-state scalp electroencephalographic data from 23 subjects, acquired at 256 Hz, and transformed using 64-point Fast Fourier Transform with a Hamming window. KPSS and Nason tests were administered to study the trend- and wide sense stationarity respectively of the spectral components. Their complexities were estimated using fuzzy entropy. Thereafter, the rosenstein algorithm for dynamic evolution was applied to determine the largest Lyapunov exponents of each component’s temporal evolution. We found that the evolutions were wide sense stationary for time scales up to 8 s, and had significant interactions, especially between spectral series in the frequency ranges 0-4 Hz, 12-24 Hz, and 32-128 Hz. The highest complexity was in the 12-24 Hz band, and increased monotonically with scale for all band sizes. However, the complexity in higher frequency bands changed more rapidly. The spectral series were generally non-chaotic, with average largest Lyapunov exponent of 0. The results show that significant information is contained in all frequency bands, and that the interactions between bands are complicated and time-varying

Markov switching GARCH models for Bayesian hedging on energy futures markets

Effective hedging strategies on oil spot and future markets are relevant in reducing price volatility for investors, energy traders and companies operating in the oil markets. A new Bayesian multi-chain Markov-switching GARCH model for dynamic hedging in energy futures markets is developed. It builds on the construction of a system of simultaneous equations for the return dynamics on the hedged portfolio and the futures. The implication of our model for portfolios allocation and energy trading are manyfold. First, our formulation allows for an easy identification of the different states of the discrete processes as volatility regimes. Secondly, the use of regime-switching models with multiple chains allows for an effective way to reduce risk. Furthermore, correlated chains are more flexible than single chain models since they account for co-movement in the volatility regimes of different markets thus they should be preferred in turbulent periods (e.g. financial crisis). Finally, the combination of the expected utility framework with the regime-switching structure allows us to define a robust minimum variance hedging strategy. Changes in the optimal hedging strategies before and after the financial crisis are evidenced when the proposed robust hedging strategy is applied to crude oil spot and futures markets. It is therefore recommended that many and different models should be used in place of a single one in energy risk hedging since they could perform differently in various phases of the market