Discrete-Time Volatility Forecasting With Persistent Leverage Effect and the Link With Continuous-Time Volatility Modeling
We first propose a reduced-form model in <italic>discrete time</italic> for S&P 500 volatility showing that the forecasting performance can be significantly improved by introducing a persistent leverage effect with a long-range dependence similar to that of volatility itself. We also find a strongly significant positive impact of lagged jumps on volatility, which however is absorbed more quickly. We then estimate <italic>continuous-time</italic> stochastic volatility models that are able to reproduce the statistical features captured by the discrete-time model. We show that a single-factor model driven by a fractional Brownian motion is unable to reproduce the volatility dynamics observed in the data, while a multifactor Markovian model fully replicates the persistence of both volatility and leverage effect. The impact of jumps can be associated with a common jump component in price and volatility. This article has online supplementary materials.
Year of publication: |
2012
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Authors: | Corsi, Fulvio ; RenĂ², Roberto |
Published in: |
Journal of Business & Economic Statistics. - Taylor & Francis Journals, ISSN 0735-0015. - Vol. 30.2012, 3, p. 368-380
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Publisher: |
Taylor & Francis Journals |
Saved in:
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