Indirect estimation of alpha-stable stochastic volatility models
AbstractThe 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 diffusion among practitioners. In this paper we propose 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. We consider both cases of heavytailed noise in the returns or in the volatility. The approach is illustrated by means of a detailed simulation study and an application to currency crises.
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Bibliographic InfoPaper provided by Universita' degli Studi di Firenze, Dipartimento di Statistica "G. Parenti" in its series Econometrics Working Papers Archive with number wp2006_07.
Date of creation: Oct 2006
Date of revision:
Other versions of this item:
- Lombardi, Marco J. & Calzolari, Giorgio, 2009. "Indirect estimation of [alpha]-stable stochastic volatility models," Computational Statistics & Data Analysis, Elsevier, vol. 53(6), pages 2298-2308, April.
- NEP-ALL-2007-01-28 (All new papers)
- NEP-ECM-2007-01-28 (Econometrics)
- NEP-ETS-2007-01-28 (Econometric Time Series)
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