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Fractionally Integrated Models for Volatility: A Review

In: Nonlinear Financial Econometrics: Markov Switching Models, Persistence and Nonlinear Cointegration

Author

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  • Dean Fantazzini

Abstract

The main motivation to use fractionally integrated I(d) models is that the propagation of shocks in these processes occurs at a slow hyperbolic rate of decay, as opposed to the exponential decay associated with the I(0) stationary and invertible ARMA class of processes, or the infinite persistence resulting from an I(1) process. In this regard, many empirical studies have showed the extreme degree of persistence of shocks to the conditional variance process. Therefore, fractionally integrated models allow for a proper modelling of the long-run dependencies in the modelling of the conditional variance.

Suggested Citation

  • Dean Fantazzini, 2011. "Fractionally Integrated Models for Volatility: A Review," Palgrave Macmillan Books, in: Greg N. Gregoriou & Razvan Pascalau (ed.), Nonlinear Financial Econometrics: Markov Switching Models, Persistence and Nonlinear Cointegration, chapter 5, pages 104-123, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-29521-6_5
    DOI: 10.1057/9780230295216_5
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    Cited by:

    1. Saker Sabkha & Christian de Peretti & Dorra Hmaied, 2017. "International risk spillover in the sovereign credit markets: An empirical analysis," Working Papers hal-01652526, HAL.
    2. Saker Sabkha & Christian de Peretti, 2018. "On the performances of Dynamic Conditional Correlation models in the Sovereign CDS market and the corresponding bond market," Working Papers hal-01710398, HAL.
    3. Saker Sabkha & Christian Peretti & Dorra Hmaied, 2019. "The Credit Default Swap market contagion during recent crises: international evidence," Review of Quantitative Finance and Accounting, Springer, vol. 53(1), pages 1-46, July.

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