Chapter1995

Asset Pricing with a FACTOR-ARCH Covariance Structure: Empirical Estimates for Treasury Bills

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Financial Risk and Volatility Modeling Financial Markets and Investment Strategies Stochastic processes and financial applications

Abstract

Abstract In this paper we suggest using the FACTOR-ARCH model as a parsimonious structure for the conditional covariance matrix of asset excess returns. This structure allows us to study the dynamic relationship between asset risk premia and volatilities in a multivariate system. One and two FACTOR-ARCH models are successfully applied to pricing of Treasury bills. The results show stability over time, pass a variety of diagnostic tests, and compare favorably with previous empirical findings.

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2005Volatility Forecasting 1992Alternative estimators for factor garch models—A monte carlo comparison 1993The Arbitrage Pricing Theory and Multifactor Models of Asset Returns 1993Time-Varying Volatility and the Dynamic Behavior of the Term Structure 2000A Multivariate GARCH Model with Time-Varying Correlations 2001Modeling and Forecasting Realized Volatility 1998The relation between conditionally heteroskedastic factor models and factor GARCH models 2008Multivariate GARCH Models

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