Indirect estimation of alpha-stable stochastic volatility models

Marco Lombardi and Giorgio Calzolari

Econometrics Working Papers Archive from Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti"

Abstract: The alpha-stable family of distributions constitutes a generalization of the Gaussian distribution, allowing for asymmetry and thicker tails. Its many useful properties, including a central limit theorem, are especially appreciated in the financial field. However, estimation difficulties have up to now hindered its diffusion among practitioners. In this paper we propose an indirect estimation approach to stochastic volatility models with alpha-stable innovations that exploits, as auxiliary model, a GARCH(1,1) with t-distributed innovations. We consider both cases of heavytailed noise in the returns or in the volatility. The approach is illustrated by means of a detailed simulation study and an application to currency crises.

Pages: 24
Date: 2006-10
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Indirect estimation of [alpha]-stable stochastic volatility models (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:fir:econom:wp2006_07

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