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Indirect estimation of [alpha]-stable stochastic volatility models

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  • Lombardi, Marco J.
  • Calzolari, Giorgio

Abstract

The [alpha]-stable family of distributions constitutes a generalization of the Gaussian distribution, allowing for asymmetry and thicker tails. Its many useful properties, including a central limit theorem, are especially appreciated in the financial field. However, estimation difficulties have up to now hindered its widespread use among practitioners. The authors introduce an indirect estimation approach to stochastic volatility models with [alpha]-stable innovations that exploits, as auxiliary model, a GARCH(1, 1) with t-distributed innovations. The approach is illustrated by means of a detailed simulation study and an application to currency crises.

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Bibliographic Info

Article provided by Elsevier in its journal Computational Statistics & Data Analysis.

Volume (Year): 53 (2009)
Issue (Month): 6 (April)
Pages: 2298-2308

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Handle: RePEc:eee:csdana:v:53:y:2009:i:6:p:2298-2308

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Web page: http://www.elsevier.com/locate/csda

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References

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  1. Lombardi, Marco J., 2007. "Bayesian inference for [alpha]-stable distributions: A random walk MCMC approach," Computational Statistics & Data Analysis, Elsevier, vol. 51(5), pages 2688-2700, February.
  2. Jacquier, Eric & Polson, Nicholas G & Rossi, Peter E, 1994. "Bayesian Analysis of Stochastic Volatility Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 371-89, October.
  3. Jacquier, Eric & Polson, Nicholas G. & Rossi, P.E.Peter E., 2004. "Bayesian analysis of stochastic volatility models with fat-tails and correlated errors," Journal of Econometrics, Elsevier, vol. 122(1), pages 185-212, September.
  4. Chib, Siddhartha & Nardari, Federico & Shephard, Neil, 2002. "Markov chain Monte Carlo methods for stochastic volatility models," Journal of Econometrics, Elsevier, vol. 108(2), pages 281-316, June.
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  17. Marco J. Lombardi & Giorgio Calzolari, 2004. "Indirect estimation of alpha-stable distributions and processes," Econometrics Working Papers Archive wp2004_07, Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti".
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  24. Marco J. Lombardi & Giorgio Calzolari, 2008. "Indirect Estimation of α-Stable Distributions and Processes," Econometrics Journal, Royal Economic Society, vol. 11(1), pages 193-208, 03.
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Citations

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Cited by:
  1. Giorgio Calzolari & Roxana Halbleib & Alessandro Parrini, 2012. "Indirect Estimation of α-Stable Garch Models," Working Paper Series of the Department of Economics, University of Konstanz 2012-31, Department of Economics, University of Konstanz.
  2. Matteo Barigozzi & Roxana Halbleib & David Veredas, . "Which model to match?," ULB Institutional Repository 2013/136240, ULB -- Universite Libre de Bruxelles.
  3. Parrini, Alessandro, 2012. "Indirect estimation of GARCH models with alpha-stable innovations," MPRA Paper 38544, University Library of Munich, Germany.
  4. Dasheng Ji & B. Brorsen, 2011. "A recombining lattice option pricing model that relaxes the assumption of lognormality," Review of Derivatives Research, Springer, vol. 14(3), pages 349-367, October.

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