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Danielsson, Jon; James, Kevin R.; Valenzuela, Marcela; … - London School of Economics (LSE) - 2014

This paper evaluates the model risk of models used for forecasting systemic and market risk. Model risk, which is the potential for different models to provide inconsistent outcomes, is shown to be increasing with and caused by market uncertainty. During calm periods, the underlying risk...

Persistent link: https://www.econbiz.de/10011163510

Estimating quadratic variation consistently in the presence of correlated measurement error

Kalnina, Ilze; Linton, Oliver - London School of Economics (LSE) - 2006

We propose an econometric model that captures the e¤ects of market microstructure on a latent price process. In particular, we allow for correlation between the measurement error and the return process and we allow the measurement error process to have a diurnal heteroskedasticity. We propose a...

Persistent link: https://www.econbiz.de/10011071545

Inference about realized volatility using infill subsampling

Kalnina, Ilze; Linton, Oliver - London School of Economics (LSE) - 2007

We investigate the use of subsampling for conducting inference about the quadratic variation of a discretely observed diffusion process under an infill asymptotic scheme. We show that the usual subsampling method of Politis and Romano (1994) is inconsistent when applied to our inference...

Persistent link: https://www.econbiz.de/10010928783

Simple tests for models of dependence between multiple financial time series, with applications to U.S. equity returns and exchange rates

Chen, Xiaohong; Fan, Yanqin; Patton, Andrew J. - London School of Economics (LSE) - 2004

stationary time series and for standardized innovations of GARCH models. A simulation study demonstrates the efficacy of both …

Persistent link: https://www.econbiz.de/10010746302

Contemporaneous aggregation of GARCH processes

Zaffaroni, Paolo - London School of Economics (LSE) - 2000

We study the impact of large cross-sections of contemporaneous aggregation of GARCH processes and of dynamic GARCH … factor models. The results crucially depend on the shape of the cross-sectional distribution of the GARCH coefficients and on … conditions, this is simply not fully diversifiable in arbitrary large portfolios. Non-GARCH memory properties arise at the …

Persistent link: https://www.econbiz.de/10010746556

Least absolute deviations estimation for ARCH and GARCH models

Peng, Liang; Yao, Qiwei - London School of Economics (LSE) - 2003

Hall & Yao (2003) showed that, for ARCH/GARCH, i.e. autoregressive conditional heteroscedastic …

Persistent link: https://www.econbiz.de/10011126223

Estimating GARCH models: when to use what?

Huang, Da; Wang, Hansheng; Yao, Qiwei - London School of Economics (LSE) - 2008

The class of generalized autoregressive conditional heteroscedastic (GARCH) models has proved particularly valuable in … for GARCH models only, the basic idea may be applied to address the estimation procedure selection problem in a general …

Persistent link: https://www.econbiz.de/10011126440

Regime switching in volatilities and correlation between stock and bond markets

Chen, Runquan - London School of Economics (LSE) - 2009

GARCH model. We extend the univariate Markov-Switching GARCH of Haas, Mittnik and Paolella (2004) into a bivariate Markov …-switching GARCH model with Conditional Constant Correlation (CCC) speci…cation within each regime, though the correlation may change …

Persistent link: https://www.econbiz.de/10011071166

On time-scaling of risk and the square–root–of–time rule

Danielsson, Jon; Zigrand, Jean-Pierre - London School of Economics (LSE) - 2003

Many financial applications, such as risk analysis and derivatives pricing, depend on time scaling of risk. A common method for this purpose, though only correct when returns are iid normal, is the square–root–of–time rule where an estimated quantile of a return distribution is scaled to a...

Persistent link: https://www.econbiz.de/10010745168

Market liquidity and funding liquidity

Brunnermeier, Markus K.; Pedersen, Lasse Heje - London School of Economics (LSE) - 2007

We provide a model that links an asset's market liquidity; i.e., the ease with which it is traded; and traders' funding liquidity, i.e. the ease with which they can obtain funding. Traders provide market liquidity, and their ability to do so depends on their availability of funding. Conversely,...

Persistent link: https://www.econbiz.de/10010745945