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Econometric estimation in long-range dependent volatility models: Theory and practice

  • Casas, Isabel
  • Gao, Jiti

It is commonly accepted that some financial data may exhibit long-range dependence, while other financial data exhibit intermediate-range dependence or short-range dependence. These behaviors may be fitted to a continuous-time fractional stochastic model. The estimation procedure proposed in this paper is based on a continuous-time version of the Gauss–Whittle objective function to find the parameter estimates that minimize the discrepancy between the spectral density and the data periodogram. As a special case, the proposed estimation procedure is applied to a class of fractional stochastic volatility models to estimate the drift, standard deviation and memory parameters of the volatility process under consideration. As an application, the volatility of the Dow Jones, S&P 500, CAC 40, DAX 30, FTSE 100 and NIKKEI 225 is estimated.

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File URL: https://mpra.ub.uni-muenchen.de/11981/1/MPRA_paper_11981.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11981.

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Date of creation: Oct 2006
Date of revision: Aug 2007
Publication status: Published in Journal of Econometrics 1.147(2008): pp. 72-83
Handle: RePEc:pra:mprapa:11981
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  6. ANDREWS, DONALD W & Sun, Yixiao X, 2002. "Adaptive Local Polynomial Whittle Estimation of Long-Range Dependence," University of California at San Diego, Economics Working Paper Series qt9wt048tt, Department of Economics, UC San Diego.
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  15. Vasicek, Oldrich Alfonso, 1977. "Abstract: An Equilibrium Characterization of the Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(04), pages 627-627, November.
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