FIN-02-037 |
NYU Stern School of Business |
June 2002
Robert Engle
ABSTRACT
In the 20 years following the publication of the
ARCH model, there has been a vast quantity of research
uncovering the properties of competing volatility models.
Wide-ranging applications to financial data have
discovered important stylized facts and illustrated both the
strengths and weaknesses of the models. There are now
many surveys of this literature.
This paper looks forward to identify promising
areas of new research. The paper lists five new frontiers. It
briefly discusses three - high frequency volatility models,
large-scale multivariate ARCH models, and derivatives
pricing models. Two further frontiers are examined in
more detail - application of ARCH models to the broad
class of non-negative processes, and use of Least Squares
Monte Carlo to examine non-linear properties of any model
that can be simulated. Using this methodology, the paper
analyzes more general types of ARCH models, stochastic
volatility models, long memory models and breaking
volatility models. The volatility of volatility is defined,
estimated and compared with option implied volatilities.
Robert F. Engle
Institution: Stern School of Business, New York University, 44 West 4th Street, New York, NY 10012
Telephone: (212) 998-0710
Fax: (212) 995-4220
Email: rengle@stern.nyu.edu
Homepage:http://www.stern.nyu.edu/~rengle
To download a copy of this paper click here
To request a copy of this paper click here
|