Semiparametric Autoregressive Conditional Proportional Hazard Models

23 Pages Posted: 8 Nov 2001

See all articles by Nikolaus Hautsch

Nikolaus Hautsch

University of Vienna - Department of Statistics and Operations Research; Center for Financial Studies (CFS); Vienna Graduate School of Finance (VGSF)

Frank Gerhard

Barclays Investment Bank

Date Written: August 2001

Abstract

A new semiparametric proportional hazard rate model is proposed which extends standard models to include a dynamic specification. Two main problems are resolved in the course of this paper. First, the partial likelihood approach to estimate the components of a standard proportional hazard model is not available in a dynamic model involving lags of the log integrated baseline hazard. We use therefore a discretisation approach to obtain a semiparametric estimate of the baseline hazard. Therefore, second, the log integrated baseline hazard is not observed directly, but only through a threshold function. We employ a special type of observation driven dynamic which allows for a computationally simple maximum likelihood estimation. This specification approximates a standard ARMA model in the log integrated baseline hazard and is identical if the baseline hazard is known. It is shown that this estimator is quite exible and easily extended to include unobserved heterogeneity, censoring and state dependent hazard rates. A Monte Carlo study on the approximation quality of the model and an empirical study on BUND future trading at the former DTB complement the paper.

Keywords: autoregressive duration models, dynamic ordered response models, generalised residuals, censoring

JEL Classification: C22, C25, C41, G14

Suggested Citation

Hautsch, Nikolaus and Gerhard, Frank, Semiparametric Autoregressive Conditional Proportional Hazard Models (August 2001). Available at SSRN: https://ssrn.com/abstract=289645 or http://dx.doi.org/10.2139/ssrn.289645

Nikolaus Hautsch (Contact Author)

University of Vienna - Department of Statistics and Operations Research ( email )

Oskar-Morgenstern-Platz 1
Vienna, A-1090
Austria

Center for Financial Studies (CFS) ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Frank Gerhard

Barclays Investment Bank ( email )

5 The North Colonnade
London, Canary Wharf E14 4BB
United Kingdom

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