Multivariate Diagonal FIGARCH: Specification, Estimation and Application to Modelling Exchange Rates Volatility

CEU Dept. of Economics Working Paper No. 5/2001

27 Pages Posted: 28 Jun 2001

See all articles by Szilard Pafka

Szilard Pafka

Eötvös Loránd University - Department of Physics of Complex Systems; Central European University (CEU) - Department of Economics

Laszlo Matyas

Central European University (CEU) - Department of Economics; Universite Paris XII Val de Marne

Date Written: June 2001

Abstract

This paper extends the FIGARCH long-memory volatility model to a multivariate framework. The proposed quasi maximum likelihood estimator for the parameters of the model is analyzed through Monte Carlo simulations and is found to perform satisfactorily. A trivariate specification is applied for modelling jointly the daily volatility of foreign exchange rates of the German mark, British pound and Japanese yen against the U.S. dollar. The empirical example shows the relevance of the model and its suitability for practical risk applications.

JEL Classification: C15, C22, F31

Suggested Citation

Pafka, Szilard and Matyas, Laszlo, Multivariate Diagonal FIGARCH: Specification, Estimation and Application to Modelling Exchange Rates Volatility (June 2001). CEU Dept. of Economics Working Paper No. 5/2001, Available at SSRN: https://ssrn.com/abstract=275142 or http://dx.doi.org/10.2139/ssrn.275142

Szilard Pafka (Contact Author)

Eötvös Loránd University - Department of Physics of Complex Systems ( email )

Pazmany P. Setany 1/a
H-1117 Budapest
Hungary

Central European University (CEU) - Department of Economics

Nador u. 9.
Budapest H-1051
Hungary

Laszlo Matyas

Central European University (CEU) - Department of Economics ( email )

Nador u. 9.
Budapest H-1051
Hungary

Universite Paris XII Val de Marne

61 avenue du General de Gaulle
Creteil cedex, 94010
France