Breitung, Jörg
Hafner, Christian
[UCL]
Popular volatility models focus on the conditional variance given past observations, whereas the (arguably most important) information in the current observation is ignored. This paper proposes a simple model for now-casting volatilities based on a specific ARMA representation of the log-transformed squared returns that allows us to estimate current volatility as a function of current and past returns. The model can be viewed as a stochastic volatility model with perfect correlation between the two error terms. It is shown that the volatility nowcasts are invariant to this correlation and therefore the estimated volatilities coincide. An extension of our now-casting model is proposed that takes into account the so-called leverage effect. The alternative models are applied to estimate daily return volatilities from the S&P 500 stock price index.
| Bibliographic reference |
Breitung, Jörg ; Hafner, Christian. A simple model for now-casting volatility series. ISBA Discussion Paper ; 2016/35 (2016) 22 pages |
| Permanent URL |
http://hdl.handle.net/2078.1/177296 |
