Finite nonparametric GARCH model for foreign exchange volatility

作者：Yang LJ

来源：Communications in Statistics - Theory and Methods, 2000, 29(5-6): 1347-1365.

DOI：10.1080/03610920008832548

• additive model
• coefficient parameter
• geometric decay
• local polynomial
• out-of-sample prediction

GARCH model has been commonly used to describe the volatility of foreign exchange returns, which typically depends on returns many lags before. White the GARCH model provides a simple geometric decaying structure for persistence in time, it restricts the impact of variables to quadratic functions. A finite nonparametric GARCH model is proposed that allows the variables' impact to be a smooth function of any form. A direct local polynomial estimation method for this finite GARCH model is proposed based on results on proportional additive model, and is applied to the German Mark (DEM)/US Dollar (USD) daily returns data. Estimators of both the decaying rate and the impact function are obtained. Diagnostics show satisfactory out-of-sample prediction based on the proposed model, which helps to better understand the dynamics of foreign exchange volatility.

• 出版日期2000