Volatility long memory is a stylized fact that has been documented for a long time. Existing literature have two ways to model volatility long memory: component volatility models and fractionally integrated volatility models. This paper develops a new fractionally integrated GARCH model, and...

Recent work by Engle and Lee (1999) shows that allowing for long-run and short-run components greatly enhances a GARCH model’s ability fit daily equity return dynamics. Using the risk-neutralization in Duan (1995), we assess the option valuation performance of the Engle-Lee model and compare...

In this paper, motivated by existing and growing evidence on multiple macroeconomic volatilities, we extend the long-run risks model of Bansal and Yaron (2004) by allowing both a long- and a short-run volatility components in the evolution of economic fundamentals. With this extension, the new...