Econometrica Vol. 64 No. 3 1996
Asymptotically Optimal Smoothing with Arch Models
open access
Abstract
Suppose an observed time series is generated by a stochastic volatility model-i.e., there is an unobservable state variable controlling the volatility of the innovations in the series. As shown by Nelson (1992), and Nelson and Foster (1994), a misspecified ARCH model will often be able to consistently (as a continuous time limit is approached) estimate the unobserved volatility process, using information in the lagged residuals. This paper shows how to more efficiently estimate such a volatility process using information in both lagged and led residuals. In particular, this paper expands the optimal filtering results of Nelson and Foster (1994) and Nelson (1994) to smoothing.
- DOI
- 10.2307/2171861
- Volume
- 64
- Issue
- 3
- Pages
- 561
- Sources
- bibtex:phds-export.bib openalex crossref