Time inhomogeneous multiple volatility modelling

Wolfgang Härdle, Helmut Herwartz and Vladimir G. Spokoiny

No 2001,7, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes

Abstract: Price variations observed at speculative markets exhibit positive autocorrelation and cross correlation among a set of assets, stock market indices, exchange rates etc. A particular problem in investigating multivariate volatility processes arises from the high dimensionality implied by a simultaneous analysis of variances and covariances. Parametric volatility models as e.g. the multivariate version of the prominent GARCH model become easily intractable für empirical work. We propose an adaptive procedure that aims to identify periods of second order homogeneity for each moment in time. Similar to principal component analysis the dimensionality problem is solved by transforming a multivariate series into a set of univariate processes. We discuss thoroughly implementation issues which naturally arise in the framework of adaptive modelling. Theoretical and Monte Carlo results are given. The empirical performance of the new method is illustrated by an application 1,0 a bivariate exchange rate series and a 23-dimensional system of asset returns. Empirical results of the FX~analysis are compared to a parametric approach, namely the multivariate GARCH model.

Keywords: stochastic volatility model; adaptive estimation; local homogeneity (search for similar items in EconPapers)
Date: 2001
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/62713/1/72392631X.pdf (application/pdf)

Related works:
Journal Article: Time Inhomogeneous Multiple Volatility Modeling (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb373:20017

Access Statistics for this paper

More papers in SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().