Hello!

I am trying to fit, using rugarch library, the Duan's 1995 model for stock

option pricing.

Duan's model includes the mean , garch in mean, their special GARCH

specification and finally one more factor, which is 0.5* variance. More

specifically it is:

rt = r + λ*sigma - 0.5 * variance + et*sigma

My problem is that I cannot find how I can include the -0.5*variance in the

mean model. λ*sigma I can use the archm function but not this extra item.

Do you know how I can force ugarchspec to add this? Also in general, how

can I add extra endogenous variables other than the standard ones?

One more question, the GARCH model of Duan's paper looks like the

family-GARCH model where λ=δ=2, but the family-GARCH is using standardized

residuals where Duan is using the raw residuals. Can this be changed as

well?

[[alternative HTML version deleted]]

_______________________________________________

[hidden email] mailing list

https://stat.ethz.ch/mailman/listinfo/r-sig-finance-- Subscriber-posting only. If you want to post, subscribe first.

-- Also note that this is not the r-help list where general R questions should go.