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MBA19141 - Assignment 3

This document estimates CCC and DCC GARCH models for correlated assets. It first fits CCC and DCC GARCH models to two assets to estimate their conditional correlations. It then extends this to estimate CCC and DCC GARCH models for 10 correlated assets, reporting their estimated conditional correlation matrices. Finally, it generates correlated random numbers for 10 assets using a Cholesky decomposition of the correlation matrix.

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Ankur Tulsyan
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35 views

MBA19141 - Assignment 3

This document estimates CCC and DCC GARCH models for correlated assets. It first fits CCC and DCC GARCH models to two assets to estimate their conditional correlations. It then extends this to estimate CCC and DCC GARCH models for 10 correlated assets, reporting their estimated conditional correlation matrices. Finally, it generates correlated random numbers for 10 assets using a Cholesky decomposition of the correlation matrix.

Uploaded by

Ankur Tulsyan
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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MBA19141_Assignment-3.

R
ARHUM

2021-01-12
rm(list=ls()) #clear the previous memory
setwd("F:/TERM 5/FRMM/Assignments") #set WD

data=read.table("Data.csv", header=T, sep=",")


data1=cbind(data[,1],data[,2])

# CCC GARCH for two assets (MRF & ITC)


library(ccgarch)
#Initial Values of the model coefficients
const=c(0.4,0.4)
arch_p=diag(2)
garch_p=diag(2)
corr_p=diag(2)
#Fit the model
garch_ccc <- eccc.estimation(const,arch_p,garch_p,corr_p,data1,
model="diagonal")
corr_1=garch_ccc$para.mat$R[1,2]
corr_1

## [1] 0.2172895

write.csv(garch_ccc$h,"CCC_GARCH_Var.csv")

#DCC GARCH for two assets (MRF & ITC)


#Initial Values of coeff
const=c(0.2,0.2) #Omega vector
arch_p=diag(2) # Alpha matrix
garch_p=diag(2) # Beta Matrix
corr_p=c(0.2,0.2)
garch_dcc <- dcc.estimation(const,arch_p,garch_p,corr_p,data,
model="diagonal")

## ****************************************************************
## * Estimation has been completed. *
## * The outputs are saved in a list with components: *
## * out : the estimates and their standard errors *
## * loglik : the value of the log-likelihood at the estimates *
## * h : a matrix of estimated conditional variances *
## * DCC : a matrix of DCC estimates *
## * std.resid : a matrix of the standardised residuals *
## * first : the results of the first stage estimation *
## * second : the results of the second stage estimation *
## ****************************************************************

corr_dcc=garch_dcc$DCC
var_dcc=garch_dcc$h
out=cbind(var_dcc,corr_dcc)
write.table(out,"Corr_out.csv",sep=",")

# CCC GARCH (10 Assets)


rm(list=ls())
data=read.table("Data_2.csv", header=T, sep=",")
data1=cbind(data[,1],data[,2],data[,3],data[,4],data[,5],data[,6],data[,7],da
ta[,8],data[,9],data[,10])
library(ccgarch)
const=c(0.1,0.1,0.1,0.1,0.1,0.1,0.1,0.1,0.1,0.1)
arch_p=diag(10)
garch_p=diag(10)
corr_p=diag(10)
garch_ccc <- eccc.estimation(const,arch_p,garch_p,corr_p,data1,
model="diagonal")
corr_1=garch_ccc$para.mat$R
corr_1

## [,1] [,2] [,3] [,4] [,5] [,6]


[,7]
## [1,] 1.0000000 0.2787031 0.3312094 0.2190469 0.2154500 0.3767476
0.2547717
## [2,] 0.2787031 1.0000000 0.2697694 0.1285787 0.1497216 0.3513145
0.2030133
## [3,] 0.3312094 0.2697694 1.0000000 0.2356960 0.1499763 0.2884464
0.3505973
## [4,] 0.2190469 0.1285787 0.2356960 1.0000000 0.2070800 0.1549705
0.1708267
## [5,] 0.2154500 0.1497216 0.1499763 0.2070800 1.0000000 0.1679034
0.1157942
## [6,] 0.3767476 0.3513145 0.2884464 0.1549705 0.1679034 1.0000000
0.1947588
## [7,] 0.2547717 0.2030133 0.3505973 0.1708267 0.1157942 0.1947588
1.0000000
## [8,] 0.4153580 0.2643596 0.3957444 0.2606296 0.1695326 0.3074126
0.3043417
## [9,] 0.2031492 0.1405086 0.1685097 0.1368272 0.1756435 0.1421285
0.1479371
## [10,] 0.2787056 0.1632716 0.2284578 0.1532455 0.1296109 0.2308730
0.1906480
## [,8] [,9] [,10]
## [1,] 0.4153580 0.2031492 0.2787056
## [2,] 0.2643596 0.1405086 0.1632716
## [3,] 0.3957444 0.1685097 0.2284578
## [4,] 0.2606296 0.1368272 0.1532455
## [5,] 0.1695326 0.1756435 0.1296109
## [6,] 0.3074126 0.1421285 0.2308730
## [7,] 0.3043417 0.1479371 0.1906480
## [8,] 1.0000000 0.1967012 0.2700480
## [9,] 0.1967012 1.0000000 0.1289611
## [10,] 0.2700480 0.1289611 1.0000000

write.csv(garch_ccc$h,"CCC_GARCH_Var_10.csv")
write.csv(corr_1,"Corr_Matrix_10_CCC.csv")

#DCC GARCH (10 Assets)


const=c(0.1,0.1,0.1,0.1,0.1,0.1,0.1,0.1,0.1,0.1)
arch_p=diag(10)
garch_p=diag(10)
corr_p=c(0.2,0.2)
garch_dcc <- dcc.estimation(const,arch_p,garch_p,corr_p,data,
model="diagonal")

## ****************************************************************
## * Estimation has been completed. *
## * The outputs are saved in a list with components: *
## * out : the estimates and their standard errors *
## * loglik : the value of the log-likelihood at the estimates *
## * h : a matrix of estimated conditional variances *
## * DCC : a matrix of DCC estimates *
## * std.resid : a matrix of the standardised residuals *
## * first : the results of the first stage estimation *
## * second : the results of the second stage estimation *
## ****************************************************************

corr_dcc=garch_dcc$DCC
var_dcc=garch_dcc$h
out=cbind(var_dcc,corr_dcc)
write.table(out,"Corr_Dcc_out.csv",sep=",")

#Monte-Carlo 10 Assets
#This code is to generate correlated Random Numbers
correl=matrix(c(1, 0.291299026793378, 0.371342320625672,
0.251947662913924, 0.225018893793893, 0.401811186637609,
0.270793686729448, 0.442170247126175, 0.250151556771484,
0.292439442357404,
0.291299026793378, 1, 0.272397648218998,
0.141975702500437, 0.15023634850428, 0.371896133942635,
0.207554308432132, 0.251972412983337, 0.15565792650742,
0.154892377023923,
0.371342320625672, 0.272397648218998, 1, 0.25689759648536,
0.149151506681028, 0.324000733781084, 0.376482313288284,
0.430089193388842, 0.201933596472416, 0.245897926544068,
0.251947662913924, 0.141975702500437, 0.25689759648536,
1, 0.222313433202035, 0.194980964851881, 0.17855860694452,
0.264999207626123, 0.180017153809134, 0.165863293859964,
0.225018893793893, 0.15023634850428, 0.149151506681028,
0.222313433202035, 1, 0.17682063298195, 0.10989287155797,
0.165860116989631, 0.18876679003336, 0.137310312939035,
0.401811186637609, 0.371896133942635, 0.324000733781084,
0.194980964851881, 0.17682063298195, 1, 0.216919923880998,
0.308499724267648, 0.188892454493974, 0.247922978615251,
0.270793686729448, 0.207554308432132, 0.376482313288284,
0.17855860694452, 0.10989287155797, 0.216919923880998, 1,
0.322184722468269, 0.155707225617494, 0.195147784261079,
0.442170247126175, 0.251972412983337, 0.430089193388842,
0.264999207626123, 0.165860116989631, 0.308499724267648,
0.322184722468269, 1, 0.226649656954128, 0.292069736533152,
0.250151556771484, 0.15565792650742, 0.201933596472416,
0.180017153809134, 0.18876679003336, 0.188892454493974,
0.155707225617494, 0.226649656954128, 1, 0.147352084480652,
0.292439442357404, 0.154892377023923, 0.245897926544068,
0.165863293859964, 0.137310312939035, 0.247922978615251,
0.195147784261079, 0.292069736533152, 0.147352084480652, 1),10,10)
#Using Cholesky Decomposition
choles=chol(correl)
#Generating three series of Independent Random Nos from Standard Normal
Distribution
z1=rnorm(1000,0,1)
z2=rnorm(1000,0,1)
z3=rnorm(1000,0,1)
z4=rnorm(1000,0,1)
z5=rnorm(1000,0,1)
z6=rnorm(1000,0,1)
z7=rnorm(1000,0,1)
z8=rnorm(1000,0,1)
z9=rnorm(1000,0,1)
z10=rnorm(1000,0,1)
z=cbind(z1,z2,z3,z4,z5,z6,z7,z8,z9,z10)
#Matrix multiplication of Independent Random Number and Cholesky
x=z%*%choles
write.csv(x,"correl_Random_Number_10Assets.csv")

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