Dear all,
I am trying to model the impact of derivatives trading on the volatility
of the underlying. I am using S Plus 6.2 and Finmetrics 1.0.2. I am using
the following code to do so:
b= as.integer(timeDate(“11/09/2001”))
derDummy= (b< as.integer(positions(accfull.s)))
acc.Dummy= garch(accfull.s~1+ seriesData(nb1.s), ~tgarch(1,1)+derDummy,
trace=F)
summary(acc.Dummy)
where b is the object that indicates the date of introduction of
derivatives. derDummy is the dummy variable that takes a value 0 pre
introduction of dummy and 1 post introduction.
This sign of the coefficient of this dummy would help me analyse whether
there has been an increase or decrease in volatility post event. However,
it doesnot tell me about the dynamics of ARCH(1) and GARCH(1) in the pre
and post event period. For that I need a dummy for each: ARCH(1) and
GARCH(1).
Something like this
Ht=alpha0+alpha1*e2+lpha2*ht-1+D1*alpha0+D2*alpha1+D3*alpha2
The signs of D1, D2 and D3 would help me understand the impact of
introduction of derivatives on all the three GARCH parameters.
Its quite some time that I have been trying to sort this out in S-Plus but
have not been successful. If any of you have faced a similar situation and
solved it, please do help me out with suggestions.
Hope to hear from some one of you..
Regards
abhilash
Abhilash S Nair
Faculty
Indian Institute of Technology Bombay
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