Publication

Volatility modeling is of particular importance to finance practitioners and academics. Traditionally, volatility has been treated as a latent variable whose dynamics is governed by a process from the Generalized Autoregressive Conditional Heteroskedasticity (GARCH) or Stochastic Volatility (SV) families. However, recent studies have formalized the concept of realized volatility (RV) as an alternative avenue for modeling financial volatility. In this article the authors propose a new mechanism to model RV dynamics: the volatility specification of the so-called Markov-switching Multifractal (MSM) models introduced by Calvet and Fisher in 2001.