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Asymmetry and Long Memory in Volatility Modelling

Manabu Asai, Michael McAleer and Marcelo Medeiros ()

No EI 2010-60, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: A wide variety of conditional and stochastic variance models has been used to estimate latent volatility (or risk). In this paper, we propose a new long memory asymmetric volatility model which captures more flexible asymmetric patterns as compared with existing models. We extend the new specification to realized volatility by taking account of measurement errors, and use the Efficient Importance Sampling technique to estimate the model. As an empirical example, we apply the new model to the realized volatility of Standard and Poor’s 500 Composite Index to show that the new specification of asymmetry significantly improves the goodness of fit, and that the out-of-sample forecasts and Value-at-Risk (VaR) thresholds are satisfactory. Overall, the results of the out-of-sample forecasts show the adequacy of the new asymmetric and long memory volatility model for the period including the global financial crisis.

Keywords: asymmetric volatility; efficient importance sampling; long memory; measurement errors; realized volatility (search for similar items in EconPapers)
Date: 2010-10-13
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https://repub.eur.nl/pub/20978/EI2010-60.pdf (application/pdf)

Related works:
Journal Article: Asymmetry and Long Memory in Volatility Modeling (2012) Downloads
Working Paper: Asymmetry and Long Memory in Volatility Modelling (2011) Downloads
Working Paper: Asymmetry and Long Memory in Volatility Modelling (2010) Downloads
Working Paper: Asymmetry and Long Memory in Volatility Modelling (2010) Downloads
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