MCFAM Seminar - Modeling heteroscedastic, skewed and leptokurtic returns in discrete time
Speaker: Joseph Ivivi Mwaniki, University of Nairobi
Abstract: Popular models of finance, fall short of accounting for most empirically found stylized features of financial time series data, such as volatility clustering, skewness and leptokurtic nature of log returns. In this study we propose a general framework for modeling asset returns which account for serial dependencies in higher moments and leptokurtic nature of scaled GARCH filtered residuals. Such residuals are calibrated to normal inverse Gaussian and hyperbolic distribution. Dynamics of risky assets assumed in Black Scholes model, Duans(1995) GARCH model and other benchmark models for option valuation, are shown to be nested in the proposed framework. Different sets of data are used to support the proposed framework.