This paper will discuss the current research in building models of conditional variances using the Autoregressive Conditional Heteroskedastic (ARCH) and Generalized ARCH (GARCH) formulations. The discussion will be motivated by a simple asset pricing theory which is particularly appropriate for examining futures contracts with risk averse agents. A new class of models defined to be integrated in variance is then introduced. This new class of models includes the variance analogue of a unit root in the mean as a special case. The models are argued to be both theoretically important for the asset pricing models and empirically relevant. The conditional density is then generalized from a normal to a Student-t with unknown degrees of freedom. By estimating the degrees of freedom, implications about the conditional kurtosis of these models and time aggregated models can be drawn. A further generalization allows the conditional variance to be a non-linear function of the squared innovations. Throughout empirical e imates of the logarithm of the exchange rate between the U.S. dollar and the Swiss franc are presented to illustrate the models.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Article provided by Taylor and Francis Journals in its journal Econometric Reviews.
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.) This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.