THE DIFFUSION LIMIT OF A TVP-GQARCH-M(1,1) MODEL

Stelios Arvanitis

Econometric Theory, 2004, vol. 20, issue 1, 161-175

Abstract: This paper presents results on the issue of weak convergence of a TVP-GQARCH-M(1,1) process. These suggest that the weak limit of this endogenous volatility model is an exogenous (stochastic) volatility continuous time process. Under the appropriate assumptions, we derive the invariant distributions at which the process converges in various cases. They reveal an approximate distributional relation between the GARCH or the asymmetric GQARCH variance processes and the continuous time Ornstein–Uhlenbeck models with respect to appropriate nonnegative Levy processes.I am grateful to Ritsa Panagiotou, Phyllis Alexander, Antonis Demos, Bruce Hansen, Nicholas Magginas, Nour Meddahi, Enrique Sentana, Paolo Zaffaroni, two anonymous referees, and the seminar participants at the Department of International and European Economic Studies for their valuable comments.

Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:cup:etheor:v:20:y:2004:i:01:p:161-175_20

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