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Persistent link: https://www.econbiz.de/10005644443
Aim of this article is to judge the empirical performance of 'ARCH models as diffusion approximations' of models of the short-term rate with stochastic volatility. Our estimation strategy is based both on moment conditions needed to guarantee the convergence of the discrete time models and on...
Persistent link: https://www.econbiz.de/10005113527
This paper uses Garch models to estimate the objective and risk-neutral density functions of financial asset prices and, by comparing their shapes, recover detailed information on economic agents' attitudes toward risk. It differs from recent papers investigating analogous issues because it uses...
Persistent link: https://www.econbiz.de/10005113677
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To implement continuous time option pricing models in which ARCH models can be used as direct or indirect approximators of stochastic volatility, we construct continuous time economies exhibiting equilibrium dynamics to which most asymmetric ARCH models converge in distribution as the sample...
Persistent link: https://www.econbiz.de/10005706678
We compare the state-price density that is implied by the cross-section of options prices with the corresponding density of the underlying asset price that is derived from an equilibrium model with Markovian stochastic volatility. If the data-generating process is of the stochastic volatility...
Persistent link: https://www.econbiz.de/10005706699
Does capital markets uncertainty affect the business cycle? We find that financial volatility predicts 30% of post-war economic activity in the United States, and that during the Great Moderation, aggregate stock market volatility explains, alone, up to 55% of real growth. In out-of-sample...
Persistent link: https://www.econbiz.de/10008821888
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This paper develops two conditionally heteroscedastic models which allow an asymmetric reaction of the conditional volatility to the arrival of news. Such a reaction is induced by both the sign of past shocks and the size of past unexpected volatility. The proposed models are shown to converge...
Persistent link: https://www.econbiz.de/10005823725