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Estimation of stochastic volatility models with diagnostics

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  • Gallant, A. Ronald
  • Hsieh, David
  • Tauchen, George

Abstract

Efficient Method of Moments (EMM) is used to fit the standard stochastic volatility model and various extensions to several daily financial time series. EMM matches to the score of a model determined by data analysis called the score generator. Discrepancies reveal characteristics of data that stochastic volatility models cannot approximate. The two score generators employed here are Nonparametric ARCH and Nonlinear Nonparametric. With the first, the standard model is rejected, although some extensions are nearly accepted. With the second, all versions are rejected. The extensions required for an adequate fit are so elaborate that nonparametric specifications are probably more convenient.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 81 (1997)
Issue (Month): 1 (November)
Pages: 159-192

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Handle: RePEc:eee:econom:v:81:y:1997:i:1:p:159-192

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

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  12. George Tauchen, 1998. "The Objective Function Of Simulation Estimators Near The Boundary Of The Unstable Region Of The Parameter Space," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 389-398, August.
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  25. Andersen, Torben G. & Lund, Jesper, 1997. "Estimating continuous-time stochastic volatility models of the short-term interest rate," Journal of Econometrics, Elsevier, vol. 77(2), pages 343-377, April.
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