A link between complete models with stochastic volatility and ARCH models

DOI10.1007/S00780-003-0103-6MaRDI QIDQ1887266zbMATH OpenOpenAlexFDO

Authors Thierry Jeantheau

Publication date 24 November 2004

Published in Finance and Stochastics (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1007/s00780-003-0103-6

zbMATH Keywords

ARCH modelsasymptotic theorydiffusion approximationMarkov chainstochastic volatility

Mathematics Subject Classification ID

Diffusion processes (60J60) Markov processes: estimation; hidden Markov models (62M05) Time series, auto-correlation, regression, etc. in statistics (GARCH) (62M10) Statistical methods; risk measures (91G70)

Review text

The author proposes a heteroscedastic model in discrete time which converges, when the sampling interval goes to zero, towards the special complete model with stochastic volatility in continuous time. The aim of the paper is to investigate the link between ARCH models and the complete model with stochastic volatility of \textit{David G. Hobson} and \textit{L. C. G. Rogers} [Math. Finance 8, No. 1, 27--48 (1998; Zbl 0908.90012)]. Under a simple assumption on the rate of convergence of the parameters, the discrete-time model, which is conditionally heteroscedastic, converges to the diffusion process, that is a complete model with stochastic volatility. This diffusion approximation result provides a numerical scheme, to approximate the Hobson and Rogers model. The stationary and moment properties of the model are studied. The consistency of the pseudo conditional likelihood maximum estimates for this specific model are proved.

Recommendations

• Issues of Aggregation Over Time of Conditional Heteroscedastic Volatility Models: What Kind of Diffusion Do We Recover?
• ARCH models as diffusion approximations
• scientific article; zbMATH DE number 1865388
• Continuous Time Approximations to GARCH and Stochastic Volatility Models
• Approximating volatility diffusions with CEV-ARCH models

Cited in

(7)

• Finite-sample theory and bias correction of maximum likelihood estimators in the EGARCH model
• The continuous-time limit of score-driven volatility models
• Stochastic Volatility: Likelihood Inference and Comparison with ARCH Models
• scientific article; zbMATH DE number 1865388 (Why is no real title available?)
• Weak diffusion limits of dynamic conditional correlation models
• Issues of Aggregation Over Time of Conditional Heteroscedastic Volatility Models: What Kind of Diffusion Do We Recover?
• Asymptotic normality of the quasi-maximum likelihood estimator for multidimensional causal processes

This page was built for publication: A link between complete models with stochastic volatility and ARCH models

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q1887266)