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Bayesian estimation of an extended local scale stochastic volatility model

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  • Deschamps, Philippe J.

Abstract

A new version of the local scale model of Shephard (1994) is presented. Its features are identically distributed evolution equation disturbances, the incorporation of in-the-mean effects, and the incorporation of variance regressors. A Bayesian posterior simulator and a new simulation smoother are presented. The model is applied to publicly available daily exchange rate and asset return series, and is compared with t-GARCH and Lognormal stochastic volatility formulations using Bayes factors.

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File URL: http://www.sciencedirect.com/science/article/B6VC0-52F6PKB-1/2/8b4740bca9317e3cb393d9797e15157f
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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 162 (2011)
Issue (Month): 2 (June)
Pages: 369-382

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Handle: RePEc:eee:econom:v:162:y:2011:i:2:p:369-382

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Web page: http://www.elsevier.com/locate/jeconom

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Keywords: State space models Markov chain Monte Carlo Simulation smoothing Generalized error distribution Generalized t distribution;

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