Sylvain Sardy

Valerie Chavez-Demoulin

English

Research Papers in Economics

JSS Journal of Statistical Software
February 2007, Volume 17, Book Review 6. http://www.jstatsoft.org/
Reviewer: Sylvain Sardy and Valerie Chavez-Demoulin
Swiss Federal Institiute of Technology
Modeling Financial Time Series with S-PLUS (Second Edition)
Eric Zivot and Jiahui Wang
Springer-Verlag, Carey, NC, 2006.
ISBN 0-387-27965-2. 998 pp. USD 69.95 (P).
http://faculty.washington.edu/ezivot/MFTS2ndEditionAdditions.htm
This book is the second edition of the previous version Modeling Financial Time Series with
S-PLUS of 2003. Chapters 18 through 23 are new and cover nonlinear time series models,
copulas, continuous-time models for ﬁnancial time series, generalized method of moments,
seminonparametric conditional density models, and eﬃcient method of moments. There is
also a new Section 4.6 entitled “Eﬃcient Unit Root Tests”, pages 132 to 138 in Chapter 4 on
unit root tests. For a thorough review of the ﬁrst edition, we refer to McNeil (2004).
The book has a double function. First, it serves as a guide to models and estimation meth-
ods for extracting information from ﬁnancial time series, and second, as a user’s guide for
Insightful’s S+FinMetrics package. That makes it interesting for mainly two communities of
readers: the academic community in econometrics, statistics and ﬁnance, and the practition-
ers in the ﬁnance industry. Regardless of the reader’s background, we believe it is necessary
to acquire an S-PLUS license with the S+FinMetrics module to use this book, which may
require a signiﬁcant investment whether working in an academic institution or a bank.
The S+FinMetrics module contains a considerable number of key functions and illustrative
examples. In parallel to the module, the book covers extensive material on classical and
modern, univariate and multivariate, time series modeling and estimation methods. As such,
the book provides an excellent support to a course in statistics for ﬁnance, and a great
help to practitioners looking for examples and tools to analyze their own time series. In
particular, students and practitioners will ﬁnd it convenient to get graphical and numerical
results by using well-documented functions. The way the book is written oﬀers a practical and
eﬃcient start in the ﬁeld of ﬁnancial time series modeling, and provides a comprehensive list
of references for the ones interested in deeper material. For the practitioner in the ﬁnancial
industry, the book ideally provides all the material essential to a practical analysis of ﬁnancial
time series. The examples treated in each chapter make the practical implementation very
easy if the practitioner knows exactly which methods can or cannot be used for his speciﬁc
application. In that respect, from a pedagogical point-of-view, the reader could be warned
along the book not to use as ‘black boxes’ the easy-to-use S+FinMetrics functions, by pointing
to potential danger if some functions are not used properly.2 Modeling Financial Time Series with S-PLUS
Because some sections and libraries are taken from various sources, the book sometimes gives
the feeling of a lack of unity, however. Chapter 3 could have served as a mean to unify the
whole book by pointing to the subsequent chapters, by highlighting their speciﬁc relevance in
the context of time series modeling. For example, Section 3.5 on multivariate time series could
point to Chapters 10 to 15, and could explain to what questions and problems these chapters
answer; Chapter 19 on copulas could also easily belong to this succession of chapters, by
being Chapter 16 instead of Chapter 19. Likewise, Chapters 17, 21 and 23 could be grouped
together as techniques of estimation. We ﬁnd that writing another chapter where a few time
series would be jointly analyzed would be beneﬁcial to the reader, for instance by working on
the estimation of the (conditional) value-at-risk and by comparing the results provided by the
techniques presented. This would help understand the links and complementarity between
techniques.
In summary this book is excellent to learn key methods and corresponding S+FinMetrics
functions to analyze ﬁnancial time series.
References
McNeil AJ (2004). “Review of ‘Modeling Financial Time Series with S-PLUS’.” Journal of
the American Statistical Association, 99(466), 564–565(2).
Reviewer:
Valerie Chavez-Dumoulin
Swiss Federal Institute of Technology
Department of Mathematics
CH 8092 Zurich Switzerland
E-mail: valerie@math.ethz.ch
URL: http://www.math.ethz.ch/~valerie/
Journal of Statistical Software http://www.jstatsoft.org/
published by the American Statistical Association http://www.amstat.org/
Volume 17, Book Review 6 Published: 2007-02-09
February 2007

Modeling Financial Time Series with S-PLUS (2nd Edition)

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Research Papers in Economics