A Mixture Multiplicative Error Model for Realized Volatility

Markku Lanne

No ECO2006/3, Economics Working Papers from European University Institute

Abstract: A multiplicative error model with time-varying parameters and an error term following a mixture of gamma distributions is introduced. The model is fitted to the daily realized volatility series of Deutschemark/Dollar and Yen/Dollar returns and is shown to capture the conditional distribution of these variables better than the commonly used ARFIMA model. The forecasting performance of the new model is found to be, in general, superior to that of the set of volatility models recently considered by Andersen et al. (2003) for the same data.

Keywords: Mixture model; Realized volatility; Gamma distribution (search for similar items in EconPapers)
JEL-codes: C22 C52 C53 G15 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-fin, nep-fmk and nep-for
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Citations: View citations in EconPapers (38)

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