Starting values

The estimation of a GARCH model requires to optimize the likelihood. This optimization may fail in case of bad starting values. Fortunately, Alexios Ghalanos, the author of the R package rugarch, did a great job in setting the optimization defaults such that the optimization is accurate in most of the cases. If you have a doubt, you can use the method setstart() to try your own starting values and verify that it leads to a similar result in terms of estimated parameters and likelihood.

Here you can test this in case of the daily EUR/USD returns in EURUSDret and assuming a constant mean standard GARCH model with Student t distribution. The model specification is available in the console as garchspec.

Estimate the model garchspec using default starting values.
Print the estimated parameters and the likelihood.
Set other starting values and re-estimate.
Print the estimated parameters and the likelihood.

Take Hint (-30 XP)

Exercise

Starting values

Instructions