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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26881
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| Title: | WHAT GOOD IS A VOLATILITY MODEL? |
| Authors: | Engle, Robert F.
Patton, Andrew J. |
| Keywords: | volatility modelling
ARCH
GARCH
volatility forecasting |
| Issue Date: | 29-Jan-2001 |
| Series/Report no.: | S-DRP-01-03 |
| Abstract: | A volatility model must be able to forecast volatility; this is the
central requirement in almost all financial applications. In this paper
we outline some stylised facts about volatility that should be
incorporated in a model; pronounced persistence and meanreversion,
asymmetry such that the sign of an innovation also affects volatility
and the possibility of exogenous or pre-determined variables influencing
volatility. We use data on the Dow Jones Industrial index to illustrate
these stylised facts, and the ability of GARCH-type models to capture
these features. We conclude with some challenges for future research in
this area. |
| URI: | http://hdl.handle.net/2451/26881 |
| Appears in Collections: | Derivatives Research
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