Modeling of Financial Instruments Volatility with Structural Breaks

Student: Gilyazova Elvira

Educational Programme: Economics (Bachelor)

Year of Graduation: 2020

In this paper three new methods of a srtuctural break detection for GARCH(1,1) process were presented. The main aim was to replace KS-method (Borzykh, Yazykov, 2019) by increase in efficiency of structural break detecting test. Methods are based on Lehmann–Rosenblatt (LR-method), Vilcoxon–Mann–Whitney (VMW-method) and Van-der-Waerden (V-method) statistical criteria. Their statistical properties were compared with KS-method statistical properties. For this purpose GARCH processes were modeled. To make numerical experiments closer to real conditions, parameter vectors were estimated on 8 World Market Indices. As a result, KS-method was not outperformed by alternatives. LR-method have higher power test, but probability of making the first kind of error is equal 1. Probabilities of making the first kind of error for two other tests are comparable to KS-method results. However their statistical powers are lower than for KS-method.

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