Articlebronze2004

THE LIVE METHOD FOR GENERALIZED ADDITIVE VOLATILITY MODELS

49 citations0/0 files storedEconometric Theory

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Financial Risk and Volatility Modeling Stochastic processes and financial applications Statistical Methods and Inference

Abstract

We investigate a new separable nonparametric model for time series, which includes many autoregressive conditional heteroskedastic (ARCH) models and autoregressive (AR) models already discussed in the literature. We also propose a new estimation procedure called LIVE, or local instrumental variable estimation, that is based on a localization of the classical instrumental variable method. Our method has considerable computational advantages over the competing marginal integration or projection method. We also consider a more efficient two-step likelihood-based procedure and show that this yields both asymptotic and finite-sample performance gains.This paper is based on Chapter 2 of the first author's Ph.D. dissertation from Yale University. We thank Wolfgang Härdle, Joel Horowitz, Peter Phillips, and Dag Tjøstheim for helpful discussions. We are also grateful to Donald Andrews and two anonymous referees for valuable comments. The second author thanks the National Science Foundation and the ESRC for financial support.

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References

1982Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation 1991Conditional Heteroskedasticity in Asset Returns: A New Approach 2002MIXING AND MOMENT PROPERTIES OF VARIOUS GARCH AND STOCHASTIC VOLATILITY MODELS 1998Efficient estimation of conditional variance functions in stochastic regression 1995Nonparametric Estimation and Identification of Nonlinear ARCH Time Series Strong Convergence and Asymptotic Normality: Strong Convergence and Asymptotic Normality 1997Local polynomial estimators of the volatility function in nonparametric autoregression 1999Nonparametric Autoregression with Multiplicative Volatility and Additive mean 1998Nonparametric vector autoregression

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2011TESTING FOR THE MARKOV PROPERTY IN TIME SERIES 2011Tilted Nonparametric Estimation of Volatility Functions With Empirical Applications 2009Semiparametric and Nonparametric ARCH Modeling

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