Estimate parameters of stable laws using a GMM method

Estimate parameters of stable laws using generalised method of moments (GMM) with finite number of moment conditions. It uses a regularisation technique to make the method more robust (when the number of moment condition is large) and allows different schemes to select where the moment conditions are computed.

GMMParametersEstim(x, algo = c("2SGMM", "ITGMM", "CueGMM"),
                   alphaReg = 0.01,
                   regularization = c("Tikhonov", "LF", "cut-off"),
                   WeightingMatrix = c("OptAsym", "DataVar", "Id"),
                   t_scheme = c("equally", "NonOptAr", "uniformOpt",
                                "ArithOpt", "VarOpt", "free"),
                   theta0 = NULL,
                   IterationControl = list(),
                   pm = 0, PrintTime = FALSE, ...)

Arguments

x: data used to perform the estimation: vector of length n.
algo: GMM algorithm: "2SGMM" is the two step GMM proposed by Hansen(1982). "CueGMM" and "ITGMM" are respectively the continuous updated and the iterative GMM proposed by Hansen, Eaton et Yaron (1996) and adapted to the continuum case.
alphaReg: value of the regularisation parameter; numeric, default = 0.01.
regularization: regularization scheme to be used, one of "Tikhonov" (Tikhonov), "LF" (Landweber-Fridmann) and "cut-off" (spectral cut-off). See RegularisedSol.
WeightingMatrix: type of weighting matrix used to compute the objective function, one of "OptAsym" (the optimal asymptotic), "DataVar" (the data driven) and "Id" (the identity matrix). See Details.
t_scheme: scheme used to select the points where the moment conditions are evaluated, one of "equally" (equally placed), "NonOptAr" (non optimal arithmetic placement), "uniformOpt" (uniform optimal placement), "ArithOpt" (arithmetic optimal placement), "Var Opt" (optimal variance placement) and "free" (users need to pass their own set of points in ...). See Details.
theta0: initial guess for the 4 parameters values: if NULL, the Kogon-McCulloch method is called, see IGParametersEstim; vector of length 4.
IterationControl: only used if type = "IT" or type = "Cue" to control the iterations. See Details.
pm: parametrisation, an integer (0 or 1); default: pm = 0 (Nolan's ‘S0’ parametrisation).
PrintTime: logical flag; if set to TRUE, the estimation duration is printed out to the screen in a readable format (h/min/sec).
...: other arguments to pass to the regularisation function, the optimisation function or the selection scheme (including the function that finds the first zero of the eCF). See Details.

Details

The moment conditions

The moment conditions are given by: $$g_t(X,\theta) = g(t,X;\theta)= e^{itX} - \phi_{\theta}(t)$$ If one has a sample $x_1,\dots,x_n$ of i.i.d realisations of the same random variable $X$, then: $$\hat{g}_n(t,\theta) = \frac{1}{n}\sum_{i=1}^n g(t,x_i;\theta) = \phi_n(t) -\phi_\theta(t),$$ where $\phi_n(t)$ is the eCF associated to the sample $x_1,\dots,x_n$, and defined by $\phi_n(t)= \frac{1}{n} \sum_{j=1}^n e^{itX_j}$.

Objective function

$$obj{\theta} = < K^{-1/2} \hat{g}_n(.;\theta),K^{-1/2}\hat{g}_n(.;\theta)>,$$ where $K^{-1}f$ denotes the solution $\varphi$ (when it exists) of the equation $K \varphi=f$ and $K^{-1/2}=(K^{-1})^{1/2}$. The optimal choice of the Weighting operator K (a matrix in the GMM case) and its estimation are discussed in Hansen (1982).

Weighting operator (Matrix)

OptAsym:: the optimal asymptotic choice as described by Hansen. The expression of the components of this matrix could be found for example in Feuerverger and McDunnough (1981b).
DataVar:: the covariance matrix of the data provided.
Id:: the identity matrix.

the t-scheme

One of the most important features of this method is that it allows the user to choose how to place the points where the moment conditions are evaluated. The general rule is that users can provide their own set of points (option "free") or choose one of the other schemes. In the latter case they need to specify the number of points nb_t in argument "\dots" and eventually the lower and upper limit (by setting Constrained to FALSE and providing min_t and max_t) in the non-optimised case. If one of the optimised cases is selected, setting Constrained to FALSE will not constrain the choice of $\tau$, see below. We mean by optimised set of point, the set that minimises the (determinant) of the asymptotic covariance matrix as suggested by Schmidt (1982) and Besbeas and Morgan (2008).

6 options have been implemented:

"equally":: equally placed points in [min_t,max_t]. When provided, user's min_t and max_t will be used (when Coinstrained = FALSE). Otherwise, eps and An will be used instead (where An is the first zero of the eCF).
"NonOptAr":: non optimal arithmetic placement: $t_j = \frac{j(j+1)}{nbt(nbt+1)}(max-eps); j=1,\dots,nbt$, where $max$ is the upper band of the set of points selected as discussed before.
"uniformOpt":: uniform optimal placement: $t_j=j \tau, j=1,\dots, nbt$
"ArithOpt":: arithmetic optimal placement: $t_j=j(j+1) \tau, j=1,\dots nbt$
"Var Opt":: optimal variance placement as explained above.
"free":: user needs to pass his own set of points in "\dots".

For the "ArithOpt" and "uniformOpt" schemes, the function to minimise is seen as a function of the real parameter $\tau$ instead of doing a vectorial optimisition as in the "Var Opt" case. In the latter case, one can choose between a fast (but less accurate) optimisation routine or a slow (but more accurate) one by setting the FastOptim flag to the desired value.

The IterationControl

If type = "IT" or type = "Cue" the user can control each iteration by setting up the list IterationControl which contains the following elements:

NbIter:: maximum number of iteration. The loop stops when NBIter is reached; default = 10.
PrintIterlogical:: if set to TRUE, the value of the current parameter estimation is printed to the screen at each iteration; default = TRUE.
RelativeErrMax:: the loop stops if the relative error between two consecutive estimation steps is smaller than RelativeErrMax; default = 1e-3.

Value

a list with the following elements:

Estim: output of the optimisation function.
duration: estimation duration in a numerical format.
method: character describing the method used.
tEstim: final set of points selected for the estimation. Only relevant when one of the optimisation scheme is selected.

References

Hansen LP (1982). ``Large sample properties of generalized method of moments estimators.'' Econometrica: Journal of the Econometric Society, pp. 1029--1054.

Hansen LP, Heaton J and Yaron A (1996). ``Finite-sample properties of some alternative GMM estimators.'' Journal of Business & Economic Statistics, 14(3), pp. 262--280.

Feuerverger A and McDunnough P (1981). ``On efficient inference in symmetric stable laws and processes.'' Statistics and Related Topics, 99, pp. 109--112.

Feuerverger A and McDunnough P (1981). ``On some Fourier methods for inference.'' Journal of the American Statistical Association, 76(374), pp. 379--387.

Schmidt P (1982). ``An improved version of the Quandt-Ramsey MGF estimator for mixtures of normal distributions and switching regressions.'' Econometrica: Journal of the Econometric Society, pp. 501--516.

Besbeas P and Morgan B (2008). ``Improved estimation of the stable laws.'' Statistics and Computing, 18(2), pp. 219--231.

Note

nlminb was used for the minimisation of the GMM objective funcion and to compute $tau$ in the "uniformOpt" and "ArithOpt" schemes. In the "Var Opt" scheme, optim was preferred. All those routines have been selected after running different tests using the summary table produced by package optimx for comparing the performance of different optimisation methods.

Examples