Modeling Time-Varying Unconditional Variance by Means of a Free-Knot Spline-GARCH Model

by Oliver Old

The book addresses the problem of a time-varying unconditional variance of return processes utilizing a spline function. The knots of the spline functions are estimated as free parameters within a joined estimation process together with the parameters of the mean, the conditional variance and the spline function. With the help of this method, the knots are placed in regions where the unconditional variance is not smooth. The results are tested within an extensive simulation study and an empirical study employing the S&P500 index.

259 pages, Paperback

Published July 28, 2022