Estimating Stable Factor Models By Indirect Inference

Giorgio Calzolari and Roxana Halbleib ()

No 2014-25, Working Paper Series of the Department of Economics, University of Konstanz from Department of Economics, University of Konstanz

Abstract: Financial returns exhibit common behavior described at best by factor models, but also fat tails, which may be captured by α-stable distributions. This paper concentrates on estimating factor models with multivariate α-stable distributed and independent factors and idiosyncratic noises under the assumption of time constant distribution (static factor models) or time-varying conditional distribution (GARCH factor models). While the simulation from such a distribution is straightforward, the estimation encounters difficulties. These difficulties are overcome in this paper by implementing the indirect inference estimation method with the multivariate Student’s t as the auxiliary distribution.

Keywords: Symmetric Multivariate α-stable Distribution; Factor Models; Indirect Inference; Multivariate Student’s t Distribution; Discrete Spectral Measures; GARCH Models (search for similar items in EconPapers)
JEL-codes: C13 C15 C18 C38 C46 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2014-12-28
New Economics Papers: this item is included in nep-ecm
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Related works:
Journal Article: Estimating GARCH-type models with symmetric stable innovations: Indirect inference versus maximum likelihood (2014)
Working Paper: Indirect Estimation of α-Stable Garch Models (2012)
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