22,905 research outputs found
Volatility modelling and accurate minimun capital risk requirements : a comparison among several approaches
In this paper we estimate, for several investment horizons, minimum capital risk requirements for
short and long positions, using the unconditional distribution of three daily indexes futures returns
and a set of GARCH-type and stochastic volatility models. We consider the possibility that errors
follow a t-Student distribution in order to capture the kurtosis of the returns distributions. The
results suggest that an accurate modeling of extreme returns obtained for long and short trading
investment positions is possible with a simple autoregressive stochastic volatility model.
Moreover, modeling volatility as a fractional integrated process produces, in general, excessive
volatility persistence and consequently leads to large minimum capital risk requirement estimates.
The performance of models is assessed with the help of out-of-sample tests and p-values of them
are reported
Estimating persistence in the volatility of asset returns with signal plus noise models
This paper examines the degree of persistence in the volatility of financial time series using a Long Memory Stochastic Volatility (LMSV) model. Specifically, it employs a Gaussian semiparametric (or local Whittle) estimator of the memory parameter, based on the frequency domain, proposed by Robinson (1995a), and shown by Arteche (2004) to be consistent and asymptotically normal in the context of signal plus noise models. Daily data on the NASDAQ index are analysed. The results suggest that volatility has a component of longmemory
behaviour, the order of integration ranging between 0.3 and 0.5, the series being
therefore stationary and mean-reverting.The second-named author gratefully acknowledges financial support from the Ministerio de Ciencia y TecnologĂa (ECO2008-03035 ECON Y FINANZAS, Spain) and from a PIUNA project at the University of Navarra
Quasi-Maximum Likelihood estimation of Stochastic Volatility models
Publicado ademĂĄs en: Recent developments in Time Series, 2003, vol. 2, ISBN13: 9781840649512, pp. 117-134Changes in variance or volatility over time can be modelled using stochastic volatility (SV) models. This approach is based on treating the volatility as an unobserved vatiable, the logarithm of which is modelled as a linear stochastic process, usually an autoregression. This article analyses the asymptotic and finite sample properties of a Quasi-Maximum Likelihood (QML) estimator based on the Kalman filter. The relative efficiency of the QML estimator when compared with estimators based on the Generalized Method of Moments is shown to be quite high for parameter values often found in empirical applications. The QML estimator can still be employed when the SV model is generalized to allow for distributions with heavier tails than the normal. SV models are finally fitted to daily observations on the yen/dollar exchange rate.Publicad
Modelling intra-daily volatility by functional data analysis: an empirical application to the spanish stock market
We propose recent functional data analysis techniques to study the intra-daily volatility.
In particular, the volatility extraction is based on functional principal components and
the volatility prediction on functional AR(1) models. The estimation of the
corresponding parameters is carried out using the functional equivalent to OLS. We
apply these ideas to the empirical analysis of the IBEX35 returns observed each _ve
minutes. We also analyze the performance of the proposed functional AR(1) model to
predict the volatility along a given day given the information in previous days for the
intra-daily volatility for the firms in the IBEX35 Madrid stocks inde
Bayesian estimation of the gaussian mixture garch model
In this paper, we perform Bayesian inference and prediction for a GARCH model where the innovations are assumed to follow a mixture of two Gaussian distributions. This GARCH model can capture the patterns usually exhibited by many financial time series such as volatility clustering, large kurtosis and extreme observations. A Griddy-Gibbs sampler implementation is proposed for parameter estimation and volatility prediction. The method is illustrated using the Swiss Market Index
Real Option Pricing in Mixed-use Development Projects
The application of real options theory to commercial real estate has developed rapidly during the last 15 Years. In particular, several pricing models have been applied to value real options embedded in development projects. In this study we use a case study of a mixed use development scheme and identify the major implied and explicit real options available to the developer. We offer the perspective of a real market application by exploring different binomial models and the associated methods of estimating the crucial parameter of volatility. We include simple binomial lattices, quadranomial lattices and demonstrate the sensitivity of the results to the choice of inputs and method.
Realizing stock market crashes: stochastic cusp catastrophe model of returns under the time-varying volatility
This paper develops a two-step estimation methodology, which allows us to
apply catastrophe theory to stock market returns with time-varying volatility
and model stock market crashes. Utilizing high frequency data, we estimate the
daily realized volatility from the returns in the first step and use stochastic
cusp catastrophe on data normalized by the estimated volatility in the second
step to study possible discontinuities in markets. We support our methodology
by simulations where we also discuss the importance of stochastic noise and
volatility in deterministic cusp catastrophe model. The methodology is
empirically tested on almost 27 years of U.S. stock market evolution covering
several important recessions and crisis periods. Due to the very long sample
period we also develop a rolling estimation approach and we find that while in
the first half of the period stock markets showed marks of bifurcations, in the
second half catastrophe theory was not able to confirm this behavior. Results
suggest that the proposed methodology provides an important shift in
application of catastrophe theory to stock markets
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