Brockwell, Peter J. and Chadraa, Erdenebaatar and Lindner, Alexander M.
A Continuous Time GARCH Process of Higher Order.
Collaborative Research Center 386, Discussion Paper 428
A continuous time GARCH model of order (p,q) is introduced, which is driven by a single Lévy process. It extends many of the features of discrete time GARCH(p,q) processes to a continuous time setting. When p=q=1, the process thus defined reduces to the COGARCH(1,1) process of Klüppelberg, Lindner and Maller (2004). We give sufficient conditions for the existence of stationary solutions and show that the volatility process has the same autocorrelation structure as a continuous time ARMA process. The autocorrelation of the squared increments of the process is also investigated, and conditions ensuring a positive volatility are discussed.