Estimation of Stochastic Volatility Models with Diagnostics

42 Pages Posted: 27 Nov 1997

See all articles by A. Ronald Gallant

A. Ronald Gallant

Duke University - Fuqua School of Business, Economics Group; New York University - Department of Economics

David A. Hsieh

Duke University - Fuqua School of Business; Duke University - Department of Economics; National Bureau of Economic Research (NBER)

George Tauchen

Duke University - Economics Group

Date Written: December 1995

Abstract

Efficient Method of Moments (EMM) is used to fit the standard stochastic volatility model and various extensions to several daily financial time series. EMM matches to the score of a model determined by data analysis called the score generator. Discrepancies reveal characteristics of data that stochastic volatility models cannot approximate. The two score generators employed here are "Semiparametric ARCH" and "Nonlinear Nonparametric". With the first, the standard model is rejected, although some extensions are accepted. With the second, all versions are rejected. The extensions required for an adequate fit are so elaborate that nonparametric specifications are probably more convenient.

JEL Classification: C14

Suggested Citation

Gallant, A. Ronald and Hsieh, David Arthur and Tauchen, George E., Estimation of Stochastic Volatility Models with Diagnostics (December 1995). Available at SSRN: https://ssrn.com/abstract=43860 or http://dx.doi.org/10.2139/ssrn.43860

A. Ronald Gallant

Duke University - Fuqua School of Business, Economics Group ( email )

Box 90097
Durham, NC 27708-0097
United States

New York University - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States

David Arthur Hsieh

Duke University - Fuqua School of Business ( email )

Department of Finance
Box 90120
Durham, NC 27708-0120
United States
919-660-7779 (Phone)
919-660-7961 (Fax)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

George E. Tauchen (Contact Author)

Duke University - Economics Group ( email )

Box 90097
221 Social Sciences
Durham, NC 27708-0097
United States
919-660-1812 (Phone)
919-684-8974 (Fax)

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