Stochastic Volatility in Financial Markets: Crossing the Bridge to Continuous Time / Edition 1

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In this book, the authors emphasize the use of the popular ARCH models in formulating, estimating and testing the continuous time stochastic volatility models favored in the theoretical literature. The primary motivation of this research project is the result that although ARCH p rocesses are stochastic difference equations, they can be thought of a s reasonable approximations to the solutions of stochastic differentia l equations as the sampling frequency gets higher and higher. In this book, the authors make use of simulation based econometric methods and show how to test whether the approximation and filtering results for ARCH models are indeed valid. The statistical methodology used rests o n the indirect inference principle, and is applied to a new class of f ully articulated continuous time equilibrium models for the determinat ion of the term structure of interest rates with stochastic volatility .

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Editorial Reviews

Fornari (Bank of Italy) and Mele (U. du Littoral) first planned a collection of their published papers, then decided to link them into a coherent account, found themselves revising the original papers considerably, and finally ended up with a much more concise and theoretical account than they started with. They emphasize the use of the popular autoregressive conditionally heteroscedastic (ARCH) models in formulating, estimating, and testing the continuous-time stochastic volatility models favored in the theoretical models. Their readers should be advanced undergraduates, graduates, or researchers in finance, quantitative finance, or financial economics. Only names are indexed. Annotation c. Book News, Inc., Portland, OR (
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Product Details

Table of Contents

List of figures. List of tables. Preface. 1. Introduction. 2. Continuous time behavior of non linear ARCH models. 3. Continuous time shastic volatility option pricing: foundational issues. 4. Models of the term structure with shastic volatility. 5. Formulating, solving and estimating models of the term structure using ARCH models as diffusion approximations. References. Index.

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