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Modeling S&P500 returns with GARCH models

Author

Listed:
  • Rodrigo Alfaro
  • Alejandra Inzunza

Abstract

This paper provides several estimates of the parameters of a GARCH model for the S&P500 index, based on: (i) returns, (ii) returns and CBOE VIX, and (iii) returns, CBOE VIX, and other option-based indexes reported by the Federal Reserve of Minneapolis. We conclude that by including option-based indexes alternative calibrations are obtained, which can be used to compute improved tail-risk statistics under the risk neutral measure, providing a better assessment of the occurrence of extreme events.

Suggested Citation

  • Rodrigo Alfaro & Alejandra Inzunza, 2022. "Modeling S&P500 returns with GARCH models," Working Papers Central Bank of Chile 955, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:955
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    File URL: https://www.bcentral.cl/documents/33528/133326/DTBC_955.pdf
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    References listed on IDEAS

    as
    1. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    2. Kanniainen, Juho & Lin, Binghuan & Yang, Hanxue, 2014. "Estimating and using GARCH models with VIX data for option valuation," Journal of Banking & Finance, Elsevier, vol. 43(C), pages 200-211.
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