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The NIG-S&ARCH model: a fat-tailed, stochastic, and autoregressive conditional heteroskedastic volatility model

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  • MORTEN B. JENSEN

    ()

  • ASGER LUNDE

    ()

Abstract

This paper examines the capabilities of the Normal Inverse Gaussian distribu-tion as a model for stock returns. We extend the model of Barndorff-Nielsen (1997) to allow for a richer volatility structure and compare with the existing GARCH-type models. We conclude that the proposed model outperforms some of the most praised GARCH-M models. In particular, we make a big gain in modelling the skewness of equity returns.

Suggested Citation

  • Morten B. Jensen & Asger Lunde, 2001. "The NIG-S&ARCH model: a fat-tailed, stochastic, and autoregressive conditional heteroskedastic volatility model," Econometrics Journal, Royal Economic Society, vol. 4(2), pages 1-10.
  • Handle: RePEc:ect:emjrnl:v:4:y:2001:i:2:p:10
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