Auxiliary Particle Filtering based Multiple Changepoint Detection in Volatility Models

M.Serdar Yümlü, Fikret S. Gürgen, A.Taylan Cemgil, and Nesrin Okay


Financial Time Series Prediction (FTSP), Multiple Changepoint Detection (MCD), Sequential Monte Carlo (SMC) methods, Particle Filtering


This paper provides a solution for the multiple changepoint detection problems in financial time series prediction without knowing the number and location of changepoints. The proposed approach is a Sequential Monte Carlo (SMC) method for estimating GARCH based volatility models which are subject to an unknown number of changepoints. Recent Auxiliary Particle Filtering (APF) techniques are used to calculate the posterior densities and forecasts in real-time. This approach also automatically deals with the common path dependence problem of these type volatility models. We studied on simulated volatility data using GARCH model and have shown that the proposed approach works well with the generated data. For the non-linearity multiple changepoint detection problem, APF is investigated over the simulated volatility to model the switching regimes. In this study, a full structural changepoint specification is defined in which all parameters of the conditional variance of GARCH are subject to change respectively.

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