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Journal articles (1997), Review of Financial Studies, pp. 837-869

The Treshold Effect in Expected Volatility : A Model based on Asymmetric Information.

This article develops theoretical insight into the treshold effect in expected volatility, which means that large shocks are less persistent in volatility than small shocks. The model uses the Kyle-Admati-Pfeiderer setup with liquidity traders, informed traders and a market maker. Information is modeled as a GARCH process. It is shown that the GARCH process for information is transformed into a TARCH process (meaning "treshold GARCH") for the market price changes.

LONGIN, F. (1997). The Treshold Effect in Expected Volatility : A Model based on Asymmetric Information. Review of Financial Studies, pp. 837-869.