Complex Systems

Misspecifying GARCH-M Processes Download PDF

Enrico Capobianco
Department of Statistical Sciences,
University of Padua,
Padua, Italy


We consider the relationships between ARCH-type and stochastic volatility models. A new class of volatility models, called generalized bilinear stochastic volatility, is described following an approach that transforms an initial GARCH-M process. The focus here is on the interpretation of some simulation results, with a special care devoted to model misspecification.