AUTOREGRESSIVE CONDITIONAL DENSITY-ESTIMATION

Engle's ARCH model is extended to permit parametric specifications for conditional dependence beyond the mean and variance. The suggestion i s to model the conditional density with a small number of ''parameters ,'' and then model these parameters as functions of the conditioning i nformation. This method is applied to two data sets. The first applica tion is to the monthly excess holding yield on U.S. Treasury securitie s, where the conditional density used is a student's t distribution. T he second application is to the U.S. Dollar/Swiss Franc exchange rate, using a new ''skewed student t'' conditional distribution.