Faster ARMA maximum likelihood estimation

  • Authors:

  • A. I. McLeod;Y. Zhang

  • Affiliations:

  • Department of Statistical and Actuarial Sciences, The University of Western Ontario, London, Ont., Canada N6A 5B7;Department of Mathematics and Statistics, Acadia University, Wolfville, NS, Canada B4P 2R6

  • Venue:
  • Computational Statistics & Data Analysis
  • Year:
  • 2008

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Abstract

A new likelihood based AR approximation is given for ARMA models. The usual algorithms for the computation of the likelihood of an ARMA model require O(n) flops per function evaluation. Using our new approximation, an algorithm is developed which requires only O(1) flops in repeated likelihood evaluations. In most cases, the new algorithm gives results identical to or very close to the exact maximum likelihood estimate (MLE). This algorithm is easily implemented in high level quantitative programming environments (QPEs) such as Mathematica, MatLab and R. In order to obtain reasonable speed, previous ARMA maximum likelihood algorithms are usually implemented in C or some other machine efficient language. With our algorithm it is easy to do maximum likelihood estimation for long time series directly in the QPE of your choice. The new algorithm is extended to obtain the MLE for the mean parameter. Simulation experiments which illustrate the effectiveness of the new algorithm are discussed. Mathematica and R packages which implement the algorithm discussed in this paper are available [McLeod, A.I., Zhang, Y., 2007. Online supplements to ''Faster ARMA Maximum Likelihood Estimation'', ]. Based on these package implementations, it is expected that the interested researcher would be able to implement this algorithm in other QPEs.