Giulio Galizio, galizg@usi.ch
The project we chose was based on implementing a program in R that would allow the estimation of a GARCH(1,1) model to check whether it was a meaningful model for checking its a valuable tool for financial predictions. Specifically, the points requested were as follows:
• Write a general function that estimates a GARCH(1,1) for a time series, and that returns the parameters, standard errors and the filtered variance process.
• Download at least 15 years of daily SP 500 data and estimate the GARCH model
• Use the estimated parameters and the filtered volatility to simulate a 95% confidence interval for a 30 day prediction period. Do this for every day in your sample.
• Verify how often the realizations 30 days ahead violate the confidence interval. Make a nice plot.
To run the program simply select all the lines of code and hit run, or do CTRL+ALT+B to run the whole program. The graphs and data can be analysed in the DATA section at the top right and in the VALUES section, using the arrows below you can scroll through the various plots produced in the output. The main file is called ”Programming Project.R” and can be read via any IDE that supports the R language, in our case we used ”R studio”.