Handbook of Financial Econometrics (eBook)

Front Cover 1
Handbook of Financial Econometrics: Tools and Techniques 4
Copyright Page 5
Contents 8
List of Contributors 26
Volume 1: Tools and Techniques 30
Chapter 1 Operator Methods for Continuous-Time Markov Processes 30
1. Introduction 31
2. Alternative Ways to Model a Continuous-Time Markov Process 32
3. Parametrizations of the Stationary Distribution: Calibrating the Long Run 40
4. Transition Dynamics and Spectral Decomposition 49
5. Hermite and Related Expansions of a Transition Density 65
6. Observable Implications and Tests 74
7. The Properties of Parameter Estimators 84
8. Conclusions 90
Acknowledgments 91
References 91
Chapter 2 Parametric and Nonparametric Volatility Measurement 96
1. Introduction 97
2. Volatility Definitions 98
3. Parametric Methods 113
4. Nonparametric Methods 132
5. Directions for Future Research 153
Acknowledgments 153
References 153
Chapter 3 Nonstationary Continuous-Time Processes 168
1. Introduction 169
2. Intuition and Conditions 172
3. Scalar Diffusion Processes 176
4. Scalar Jump-Diffusion Processes 203
5. Multivariate Diffusion Processes 213
6. Concluding Remarks 223
Acknowledgments 225
References 225
Chapter 4 Estimating Functions for Discretely Sampled Diffusion-Type Models 232
1. Introduction 233
2. Estimating Functions 235
3. Estimating Functions for Diffusion-Type Processes 241
4. Optimal Estimating Functions for Diffusion Models 268
Acknowledgments 291
References 291
Chapter 5 Portfolio Choice Problems 298
1. Introduction 299
2. Theoretical Problem 300
3. Traditional Econometric Approaches 320
4. Alternative Econometric Approach 350
Acknowledgments 358
References 359
Chapter 6 Heterogeneity and Portfolio Choice: Theory and Evidence 366
1. Introduction 367
2. Summary Statistics on Stock Market Participation and Portfolio Choice 369
3. Theories of Portfolio Choice 379
4. Quantitative Analyses 387
5. Empirical Evidence and Issues 394
6. Conclusions 403
Acknowledgments 405
References 405
Chapter 7 Analysis of High-Frequency Data 412
1. Introduction 413
2. Econometric Framework 423
3. Conclusion 450
Appendix A: EACD(3,3) Parameter Estimates Using EVIEWS GARCH Module 452
Appendix B: VAR Parameter Estimates 452
References 453
Chapter 8 Simulated Score Methods and Indirect Inference for Continuous-time Models 456
1. Introduction and Overview 457
2. Estimation and Model Evaluation 460
3. Projection: General Guidelines on the Score Generator 468
4. A General Purpose Score Generator 472
5. Reprojection: Analysis of Postestimation Simulations 482
6. Applications 488
7. Software and Practical Issues 495
8. Conclusion 501
References 502
Chapter 9 The Econometrics of Option Pricing 508
1. Introduction and Overview 509
2. Pricing Kernels, Risk-Neutral Probabilities, and Option Pricing 512
3. Modeling Asset Price Dynamics via Diffusions for the Purpose of Option Pricing 525
4. Implied Risk-Neutral Probabilities 539
5. Nonparametric Approaches 553
6. Conclusion 571
Acknowledgments 573
References 573
Chapter 10 Value at Risk 582
1. Introduction 583
2. Value at Risk 585
3. Estimation of the Marginal VaR 594
4. Estimation of the Conditional VaR 604
5. VaR for Portfolios with Derivatives 613
6. Credit Risk 618
7. Future Directions for Research and Development 632
8. Concluding Remarks 638
Acknowledgments 638
References 638
Chapter 11 Measuring and Modeling Variation in the Risk-Return Trade-off 646
1. Introduction 647
2. The Conditional Mean of Stock Returns 651
3. The Conditional Volatility of Stock Returns and Its Relation to the Conditional Mean 685
4. The Conditional Sharpe Ratio 701
5. Conclusion 710
Appendix: Data Description 711
Acknowledgments 713
References 713
Chapter 12 Affine Term Structure Models 720
1. Introduction 721
2. Basics 725
3. Affine Models 732
4. Affine General Equilibrium Models 747
5. Some Famous Affine Models 751
6. Estimation Methods for Affine Models 754
7. Empirical Evidence on Affine Models 761
8. Joint System with Other Macroeconomic Variables 783
Acknowledgments 787
References 787
Index 796