北京大学实证金融学讲义 7 volatility.ppt

Chapter 8 Modelling volatility and correlation An Excursion into Non-linearity Land Motivation: the linear structural (and time series) models cannot explain a number of important features common to much financial data - leptokurtosis - volatility clustering or volatility pooling - leverage effects ? Our “traditional” structural model could be something like: yt = ?1 + ?2x2t + ... + ?kxkt + ut, or more compactly y = X? + u. ?We also assumed ut ? N(0,?2). A Sample Financial Asset Returns Time Series Daily SP 500 Returns for January 1990 – December 1999 Non-linear Models: A Definition Campbell, Lo and MacKinlay (1997) define a non-linear data generating process as one that can be written yt = f(ut, ut-1, ut-2, …) where ut is an iid error term and f is a non-linear function. They also give a slightly more specific definition as yt = g(ut-1, ut-2, …)+ ut?2(ut-1, ut-2, …) where g is a function of past error terms only and ?2 is a variance term. Models with nonlinear g(?) are “non-linear in mean”, while those with nonlinear ?2(?) are “non-linear in variance”. Types of non-linear models The linear paradigm is a useful one. Many apparently non-linear relationships can be made linear by a suitable transformation. On the other hand, it is likely that many relationships in finance are intrinsically non-linear. There are many types of non-linear models, e.g. - ARCH / GARCH - switching models - bilinear models ? Testing for Non-linearity The “traditional” tools of time series analysis (acf’s, spectral analysis) may find no evidence that we could use a linear model, but the data may still not be independent. Portmanteau tests for non-linear dependence have been developed. The simplest is Ramsey’s RESET test, which took the form: ? Many other non-linearity tests are available, e.g. the “BDS test” and the bispectrum test. One particular non-linear model that has proved very useful in finance is the ARCH model due to Engle (1982). Heterosceda