Exact Elliptical Distributions for Models of Conditionally Random Financial Volatility

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Exact Elliptical Distributions for Models of Conditionally Random Financial Volatility

Author Info

George A. Christodoulakis () (Bank of Greece and Manchester Business School)
Stephen E Satchell (Trinity College, University of Cambridge and Bank of Greece)

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George A. Christodoulakis

Abstract

Assuming the time series of random returns to be jointly elliptical, we derive a relationship between its conditional variance and the probability density function of the conditioning set. In the case that such a relationship is linear in a quadratic form for of the conditioning variables, we show that the probability density function of the conditioning variables is multivariate t. This result is then applied to models of conditionally random volatility and used to derive exact results for the GARCH(p,q) class of processes previously thought to be intractable.

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Paper provided by Bank of Greece in its series Working Papers with number 32.

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Length: 21 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:bog:wpaper:32

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-11-18 (All new papers)
NEP-ECM-2006-11-18 (Econometrics)

References listed on IDEAS
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.:

Keith Vorkink, 2003. "Return Distributions and Improved Tests of Asset Pricing Models," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 16(3), pages 845-874, July. [Downloadable!] (restricted)
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Keith Vorkink & Douglas J. Hodgson & Oliver Linton, 2002. "Testing the capital asset pricing model efficiently under elliptical symmetry: a semiparametric approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(6), pages 617-639. [Downloadable!]
Other versions:
- Oliver Linton & Douglas J.Hodgson & Keith Vorkink, 2001. "Testing the Capital Asset Pricing Model Efficiently Under Elliptical Symmetry: A Semiparametric Approach," FMG Discussion Papers dp382, Financial Markets Group. [Downloadable!] (restricted)
- Douglas J Hodgson & Oliver Linton & Keith Vorkink, 2000. "Testing the Capital Asset Pricing Model Efficiently under Elliptical Symmetry: A Semiparametric Approach," STICERD - Econometrics Paper Series /2000/398, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
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Other versions:
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- Drost, F.C. & Nijman, T.E., 1990. "Temporal Aggregation Of Garch Processes," Papers 9066, Tilburg - Center for Economic Research.
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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.)

Andreas S. Andreou & George A. Zombanakis, 2006. "Computational Intelligence in Exchange-Rate Forecasting," Working Papers 49, Bank of Greece. [Downloadable!]
Richard N. Cooper & Michael Bordo & Harold James, 2006. "What About a World Currency? Proposal for a Common Currency among Rich Democracies. One World Money, Then and Now," Working Papers 44, Bank of Greece. [Downloadable!]
George S. Tavlas & P.A.V.B. Swamy, 2006. "The New Keynesian Phillips Curve and Inflation Expectations: Re-Specification and Interpretation," Working Papers 34, Bank of Greece. [Downloadable!]
Other versions:
- P. Swamy & George Tavlas, 2007. "The New Keynesian Phillips Curve and Inflation Expectations: Re-Specification and Interpretation," Economic Theory, Springer, vol. 31(2), pages 293-306, May. [Downloadable!] (restricted)

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