In the present work, GARCH models are incorporated in a regime- switching framework that allows to take into account the existence of two different volatility regimes which characterized by a different level of volatility. In both regimes volatility follows a GARCH-like pattern since GARCH models typically show high volatility persistence. To take into account the excessive persistence usually found in GARCH models that implies too smooth and too high volatility forecasts, Markov Regime- Switching GARCH (MRS-GARCH) models where the parameters are allowed to switch between a low and a high volatility regime, are used.
View on SCiNiTO
Top