Componentwise different tail solutions for bivariate stochastic recurrence equations -- with application to GARCH(1,1) processes --

Ewa Damek; Muneya Matsui; Witold Świątkowski

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arXiv · 1706.05800

Componentwise different tail solutions for bivariate stochastic recurrence equations -- with application to GARCH(1,1) processes --

Ewa Damek·Muneya Matsui·Witold Świątkowski

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Abstract

We study bivariate stochastic recurrence equations (SREs) motivated by applications to GARCH(1,1) processes. If coefficient matrices of SREs have strictly positive entries, then the Kesten result applies and it gives solutions with regularly varying tails. Moreover, the tail indices are the same for all coordinates. However, for applications, this framework is too restrictive. We study SREs when coefficients are triangular matrices and prove that the coordinates of the solution may exhibit regularly varying tails with different indices. We also specify each tail index together with its constant. The results are used to characterize regular variations of bivariate stationary GARCH(1,1) processes.

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Ewa Damek, Muneya Matsui, Witold Świątkowski. 2017-06-19. Componentwise different tail solutions for bivariate stochastic recurrence equations -- with application to GARCH(1,1) processes --. https://arxiv.org/abs/1706.05800

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