Oliver Linton (London School of Economics)

"Nonparametrics in Financial Econometrics: Discrete time volatility and Continuous time processes"

The lecture is divided in two parts, continuous time processes and discrete time volatility. In the first part, basic concepts such as Brownian motion and diffusion processes are defined. The important Ito lemma will be discussed using many examples of the finance literature. We will then deal with estimation issues of parametric and non- or semiparametric diffusion models. In the second part on discrete time volatility we discuss the popular ARCH model and compare it with the alternative stochastic volatility model. We will see how to incorporate the empirically observed effect of long memory into these models. Finally, we discuss recent advances in multivariate and non- or semiparametric volatility modelling.