SERVING THE QUANTITATIVE FINANCE COMMUNITY

 
User avatar
tiko
Topic Author
Posts: 217
Joined: March 7th, 2003, 11:11 am

Can I run my VAR model on differenced variables?

January 4th, 2019, 7:42 pm

1- Can I run my VAR on first differenced variables or returns, rather than level variables, or is that totally wrong?

2-I run a second VAR model on level variables, do I have to take their logs?
 
User avatar
bearish
Posts: 4421
Joined: February 3rd, 2011, 2:19 pm

Re: Can I run my VAR model on differenced variables?

January 5th, 2019, 10:27 pm

Assuming that you are talking about vector autoregression, this discussion may be of use: VAR in levels or differences. The answer to your second question depends on how you think the volatility of your processes are best specified: constant in absolute terms or constant as a fraction of the level (as we used to say in interest rate modeling in the early 90's: are rates normal or lognormal?).
 
User avatar
tiko
Topic Author
Posts: 217
Joined: March 7th, 2003, 11:11 am

Re: Can I run my VAR model on differenced variables?

January 6th, 2019, 5:46 am

Thank you dear bearish for the link, helps :)
ABOUT WILMOTT

PW by JB

Wilmott.com has been "Serving the Quantitative Finance Community" since 2001. Continued...


Twitter LinkedIn

JOBS BOARD

JOBS BOARD

Looking for a quant job, risk, algo trading,...? Browse jobs here...


GZIP: On