Date: 2006
Type: Working Paper
A Mixture Multiplicative Error Model for Realized Volatility
Working Paper, EUI ECO, 2006/3
LANNE, Markku, A Mixture Multiplicative Error Model for Realized Volatility, EUI ECO, 2006/3 - https://hdl.handle.net/1814/4157
Retrieved from Cadmus, EUI Research Repository
A multiplicative error model with time-varying parameters and
an error term following a mixture of gamma distributions is intro-
duced. The model is fitted to the daily realized volatility series of
Deutschemark/Dollar and Yen/Dollar returns and is shown to capture
the conditional distribution of these variables better than the com-
monly used ARFIMA model. The forecasting performance of the new
model is found to be, in general, superior to that of the set of volatil-
ity models recently considered by Andersen et al. (2003) for the same
data.
Cadmus permanent link: https://hdl.handle.net/1814/4157
ISSN: 1725-6704
Series/Number: EUI ECO; 2006/3
Publisher: European University Institute
Keyword(s): Mixture model Realized volatility Gamma distribution