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Semiparametric Bayesian Inference of Long-Memory Stochastic Volatility Models

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Mark J. Jensen

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Abstract

In this paper, a semiparametric, Bayesian estimator of the long-memory stochastic volatility model's fractional order of integration is presented. This new estimator relies on a highly efficient, Markov chain Monte Carlo (MCMC) sampler of the model's posterior distribution. The MCMC algorithm is set forth in the time-scale domain of the stochastic volatility model's wavelet representation. The key to and centerpiece of this new algorithm is the quick and efficient multi-state sampler of the latent volatility's wavelet coefficients. A multi-state sampler of the latent wavelet coefficients is only possible because of the near-independent multivariate distribution of the long-memory process's wavelet coefficients. Using simulated and empirical stock return data, we find that our algorithm produces uncorrelated draws of the posterior distribution and point estimates that rival existing long-memory stochastic volatility estimators. Copyright 2004 Blackwell Publishing Ltd.

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Article provided by Blackwell Publishing in its journal Journal of Time Series Analysis.

Volume (Year): 25 (2004)
Issue (Month): 6 (November)
Pages: 895-922
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Handle: RePEc:bla:jtsera:v:25:y:2004:i:6:p:895-922

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  1. Mark J. Jensen & John M. Maheu, 2008. "Bayesian semiparametric stochastic volatility modeling," Working Paper 2008-15, Federal Reserve Bank of Atlanta. [Downloadable!]
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This page was last updated on 2009-11-22.

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