Parametric inference and forecasting in continuously invertible volatility models

Olivier Wintenberger and Sixiang Cai

MPRA Paper from University Library of Munich, Germany

Abstract: We introduce the notion of continuously invertible volatility models that relies on some Lyapunov condition and some regularity condition. We show that it is almost equivalent to the volatilities forecasting efficiency of the parametric inference approach based on the Stochastic Recurrence Equation (SRE) given in Straumann (2005). Under very weak assumptions, we prove the strong consistency and the asymptotic normality of an estimator based on the SRE. From this parametric estimation, we deduce a natural forecast of the volatility that is strongly consistent. We successfully apply this approach to recover known results on univariate and multivariate GARCH type models where our estimator coincides with the QMLE. In the EGARCH(1,1)model, we apply this approach to find a strongly consistence forecast and to prove that our estimator is asymptotically normal when the limiting covariance matrix exists. Finally, we give some encouraging empirical results of our approach on simulations and real data.

Keywords: Invertibility; volatility models; parametric estimation; strong consistency; asymptotic normality; asymmetric GARCH; exponential GARCH; stochastic recurrence equation; stationarity (search for similar items in EconPapers)
JEL-codes: C01 C13 C32 C53 (search for similar items in EconPapers)
Date: 2011-06-20
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-for and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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