Journal
STATISTICAL MODELLING
Volume 8, Issue 3, Pages 263-283Publisher
SAGE PUBLICATIONS LTD
DOI: 10.1177/1471082X0800800303
Keywords
Generalized linear models; Levy processes; normal inverse Gaussian distribution; likelihood for random-effect models; portfolio selection
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We propose a multivariate volatility model for the behaviour of eight international equity indices. We show that many volatility models with heavy tails in financial work can be viewed as the GLM class of models with random effects in the dispersion. Hence, the h-likelihood approach, which provides efficient and simpler algorithms for GLM class, can be used as an estimation method for models used in finance. A comparison of the h-likelihood estimators with the ML estimators is made and its relative merits are discussed.
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