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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26481
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| Title: | NEW FRONTIERS FOR ARCH MODELS |
| Authors: | Engle, Robert |
| Keywords: | ARCH, GARCH
volatility
non-linear process
non-negative process
option pricing
stochastic volatility
long memory
Least Squares Monte Carlo
ACD
Multiplicative Error Model
MEM |
| Issue Date: | 6-Jun-2002 |
| Series/Report no.: | FIN-02-037 |
| Abstract: | In the 20 years following the publication of the ARCH model, there has
been a vast quantity of research uncovering the properties of competing
volatility models. Wide-ranging applications to financial data have
discovered important stylized facts and illustrated both the strengths
and weaknesses of the models. There are now many surveys of this
literature. This paper looks forward to identify promising areas of new
research. The paper lists five new frontiers. It briefly discusses three
high frequency volatility models, large-scale multivariate ARCH models,
and derivatives pricing models. Two further frontiers are examined in
more detail – application of ARCH models to the broad class of
non-negative processes, and use of Least Squares Monte Carlo to examine
non-linear properties of any model that can be simulated. Using this
methodology, the paper analyzes more general types of ARCH models,
stochastic volatility models, long memory models and breaking volatility
models. The volatility of volatility is defined, estimated and compared
with option implied volatilities. |
| URI: | http://hdl.handle.net/2451/26481 |
| Appears in Collections: | Finance Working Papers
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