Double-conditional smoothing of high-frequency volatility surface in a spatial multiplicative component GARCH with random effects

Yuanhua Feng

No 65, Working Papers CIE from Paderborn University, CIE Center for International Economics

Abstract: This paper introduces a spatial framework for high-frequency returns and a faster double-conditional smoothing algorithm to carry out bivariate kernel estimation of the volatility surface. A spatial multiplicative component GARCH with random effects is proposed to deal with multiplicative random effects found from the data. It is shown that the probabilistic properties of the stochastic part and the asymptotic properties of the kernel volatility surface estimator are all strongly affected by the multiplicative random effects. Data example shows that the volatility surface before, during and after the 2008 financial crisis forms a volatility saddle.

Keywords: Spatial multiplicative component GARCH; high-frequency returns; double-conditional smoothing; multiplicative random effect; volatility arch; volatility saddle. (search for similar items in EconPapers)
Pages: 28 pages
Date: 2013-08
New Economics Papers: this item is included in nep-ets and nep-mst
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:pdn:ciepap:65

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