Fractionally Integrated Models for Volatility: A Review

Dean Fantazzini

Chapter 5 in Nonlinear Financial Econometrics: Markov Switching Models, Persistence and Nonlinear Cointegration, 2011, pp 104-123 from Palgrave Macmillan

Abstract: Abstract The main motivation to use fractionally integrated I(d) models is that the propagation of shocks in these processes occurs at a slow hyperbolic rate of decay, as opposed to the exponential decay associated with the I(0) stationary and invertible ARMA class of processes, or the infinite persistence resulting from an I(1) process. In this regard, many empirical studies have showed the extreme degree of persistence of shocks to the conditional variance process. Therefore, fractionally integrated models allow for a proper modelling of the long-run dependencies in the modelling of the conditional variance.

Keywords: Conditional Variance; GARCH Model; EGARCH Model; ARFIMA Model; Fractional Difference Parameter (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1057/9780230295216_5

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