The continuous limit of weak GARCH
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Time series, auto-correlation, regression, etc. in statistics (GARCH) (62M10) Applications of statistics to actuarial sciences and financial mathematics (62P05) Applications of statistics to economics (62P20) Economic time series analysis (91B84) Derivative securities (option pricing, hedging, etc.) (91G20)
Abstract: We prove that the symmetric weak GARCH limit is a geometric mean-reverting stochastic volatility process with diffusion determined by kurtosis of physical log returns; this provides an improved fit to implied volatility surfaces. When log returns are normal the limit coincides with Nelson's limit. The limit is unique, unlike strong GARCH limits, because assumptions about convergence of model parameters is unnecessary -- parameter convergence is uniquely determined by time-aggregation of the weak GARCH process.
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Cited in
(9)- Closing the GARCH gap: Continuous time GARCH modeling
- Reconsidering the continuous time limit of the GARCH(1,1) process
- Temporal aggregation and systematic sampling for INGARCH processes
- Limit theory for moderate deviation from integrated GARCH processes
- Estimating weak GARCH representations
- scientific article; zbMATH DE number 6039561 (Why is no real title available?)
- THE DIFFUSION LIMIT OF A TVP-GQARCH-M(1,1) MODEL
- Tail risk monotonicity in GARCH(1,1) models
- The effects of aggregation and sampling on periodic INGARCH processes
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