VARMALIK Call

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Changes and Enhancements

VARMALIK Call

computes the log-likelihood function for a VARMA(p,q) model

CALL VARMALIK( lnl, series, phi, theta, sigma <, p, q, opt> );

The inputs to the VARMALIK subroutine are as follows:

series

specifies an n×k matrix containing the vector time series (assuming mean zero), where n is the number of observations and $k\geq 2$ is the number of variables.

phi

specifies a km_p ×k matrix containing the autoregressive coefficient matrices, where m_p is the number of the elements in the subset of the AR order. You must specify either phi or theta.

theta

specifies a km_q ×k matrix containing the moving-average coefficient matrices, where m_q is the number of the elements in the subset of the MA order. You must specify either phi or theta.

sigma

specifies a k ×k covariance matrix of the innovation series. If you do not specify sigma, an identity matrix wis used.

p

specifies the subset of the AR order. See the VARMACOV subroutine.

q

specifies the subset of the MA order. See the VARMACOV subroutine.

opt

specifies the method of computing the log-likelihood function:

opt=0: requests the multivariate innovations algorithm. This algorithm requires that the time series is stationary and does not contain missing observations.
opt=1: requests the conditional log-likelihood function. This algorithm requires that the number of the observations in the time series must be greater than p+q and that the series does not contain missing observations.
opt=2: requests the Kalman filtering algorithm. This is the default and is used if the required conditions in opt=0 and opt=1 are not satisfied.

The VARMALIK subroutine returns the following value:

lnl: is a 3×1 matrix containing the log-likelihood function, the sum of log determinant of the innovation variance, and the weighted sum of squares of residuals. The log-likelihood function is computed as -0.5× (the sum of last two terms).

The options opt=0 and opt=2 are equivalent for stationary time series without missing values. Setting opt=0 is useful for a small number of the observations and a high order of p and q; opt=1 is useful for a high order of p and q; opt=2 is useful for a low order of p and q, or for missing values in the observations.

To compute the log-likelihood function of a bivariate (k=2) VARMA(1,1) model

$y_t=\Phi y_{t-1} + {\epsilon}_t - \Theta {\epsilon}_{t-1}$

where

$\Phi=[\matrix{1.2 & -0.5 \cr 0.6 & 0.3 \cr }] \Theta=[\matrix{-0.6 & 0.3 \cr 0.3 & 0.6 \cr }] \Sigma=[\matrix{1.0 & 0.5 \cr 0.5 & 1.25\cr }]$

you can specify

  phi  = { 1.2 -0.5, 0.6 0.3 };
  theta= {-0.6  0.3, 0.3 0.6 };
  sigma= { 1.0  0.5, 0.5 1.25};
  call varmasim(yt, phi, theta) sigma=sigma;
  call varmalik(lnl, yt, phi, theta, sigma);

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