1 / 22

The figure displays S&P daily returns over the last 40 years .

The figure displays S&P daily returns over the last 40 years . Conditional variance fluctuates across time and is very persistent. Impressive amount of empirical work : Engle (1982), Bollerslev (1986), Bollerslev et al. (1988), Nelson (1991), etc.

zeke
Download Presentation

The figure displays S&P daily returns over the last 40 years .

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The figure displays S&P dailyreturns over the last 40 years. • Conditional variance fluctuatesacross time and isvery persistent. • Impressive amount of empiricalwork: Engle (1982), Bollerslev (1986), Bollerslev et al. (1988), Nelson (1991), etc. • Mele (2008): close connectionbetweenaggregate stock marketvolatility and the business cycle. • The figure depicts the relation betweenvolatility and the industrial production growth rate over the last sixtyyears. • Stock volatilityislargelycountercyclical, beinglarger in bad times than in good times.

  2. B A Investor A estimates the parameterswithbias Investor B estimates the parameterscorrectly

  3. B A Investor A estimates the parameterswithbias Investor B estimates the parameterscorrectly Filter (Kalman-Bucy) => Difference of beliefs :

  4. LinearQuadratic Setup Cheng & Scaillet (MF, 2007) Transforminto a Standard Affine Setup Duffie (2008) Obtain a System of Riccati Equations Enders & Schmidtmann (1992) Solve by Embeddinginto a MatrixRiccati Equation Radon’sLemma Transforminto a Linear Cauchy Problem Polyanin & Zaitsev (2003) MatrixExponential Solution Jordan Decomposition Closed-Form Solution

  5. 0.13 0.02 0.1 0.03 0.075 3

More Related