Modeling heteroscedastic, skewed and leptokurtic returns in discrete time

IJMwaniki. "Modeling heteroscedastic, skewed and leptokurtic returns in discrete time." Journal of Applied Finance & Banking. 2019;9(5):1-14.


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 GARCH model and other benchmark models for contract valuation, are shown to be nested in the the proposed framework


Keywords: Stylized facts; Normal inverse Gaussian; GARCH model; Hyperbolic
distribution; leptokurtic returns


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