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Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/26881
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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