Asymptotically Optimal Smoothing with ARCH Models
AbstractSuppose an observed time series is generated by a stochastic volatility model-i.e., there is an unobservable state variable controlling the volatility of the innovations in the series. As shown by Nelson (1992), and Nelson and Foster (1994), a misspecified ARCH model will often be able to consistently (as a continuous time limit is approached) estimate the unobserved volatility process, using information in the lagged residuals. This paper shows how to more efficiently estimate such a volatility process using information in both lagged and led residuals. In particular, this paper expands the optimal filtering results of Nelson and Foster (1994) and Nelson (1994) to smoothing.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0161.
Date of creation: Aug 1994
Date of revision:
Publication status: published as Nelson, Daniel B. "Asymptotically Optimal Smoothing With ARCH Models," Econometrica, 1996, v64(3,May), 561-573.
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Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
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