Some statistical models for durations and their applications in finance

Authors

Harry Zheng
David E. Allen
Lyn C. Thomas

Document Type

Other

Publisher

Edith Cowan University

Place of Publication

Perth, Western Australia

School

School of Accounting, Finance and Economics

Comments

Zheng, H., Thomas, L., Allen, D. (2001). The duration derby : a comparison of duration based strategies in asset liability management. Perth, Australia: Edith Cowan University.

Abstract

We first consider a new class of time series models (introduced by Engle and Russell (1998)) use in statistical applications in finance. These models treat the time between events (durations) as a stochastic process and the corresponding durations are modelled using a theory similar to that of autoregressive processes. This new class of time series models is called Autoregressive Conditional Duration (ACD) models. Various extensions and the statistical properties of this class of ACD models are given. We also suggest some alternative models for durations arising from the market microstructure literature. An estimation procedure is discussed. The theory is illustrated using a potential application in finance.