A Simple Approximate Long-Memory Model of Realized Volatility

Download or read book A Simple Approximate Long-Memory Model of Realized Volatility written by Fulvio Corsi and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper proposes an additive cascade model of volatility components defined over different time periods. This volatility cascade leads to a simple AR-type model in the realized volatility with the feature of considering different volatility components realized over different time horizons and thus termed Heterogeneous Autoregressive model of Realized Volatility (HAR-RV). In spite of the simplicity of its structure and the absence of true long-memory properties, simulation results show that the HAR-RV model successfully achieves the purpose of reproducing the main empirical features of financial returns (long memory, fat tails, and self-similarity) in a very tractable and parsimonious way. Moreover, empirical results show remarkably good forecasting performance.