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A multivariate threshold stochastic volatility model

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  • So, Mike K.P.
  • Choi, C.Y.

Abstract

We introduce in this paper a multivariate threshold stochastic volatility model for multiple financial return time series. This model allows the dynamic structure of return and volatility to change according to a threshold model while accounting for the interdependence of financial returns. Through the threshold volatility modeling, we can understand the impact of market news on volatility asymmetry. Estimation of unknown parameters are carried out using Markov chain Monte Carlo techniques. Simulations show that our estimators are reliable in moderately large sample sizes. We apply the model to three market indice data and estimate time-varying correlations among the indice returns.

Suggested Citation

  • So, Mike K.P. & Choi, C.Y., 2008. "A multivariate threshold stochastic volatility model," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 79(3), pages 306-317.
    • Handle: RePEc:eee:matcom:v:79:y:2008:i:3:p:306-317
    DOI: 10.1016/j.matcom.2007.12.003
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    References listed on IDEAS

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    Cited by:

    1. Roberto Casarin & Marco Tronzano & Domenico Sartore, 2013. "Bayesian Markov Switching Stochastic Correlation Models," Working Papers 2013:11, Department of Economics, University of Venice "Ca' Foscari".
    2. Mike K. P. So & C. Y. Choi, 2009. "A threshold factor multivariate stochastic volatility model," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(8), pages 712-735.
    3. Li, Johnny Siu-Hang & Ng, Andrew C.Y. & Chan, Wai-Sum, 2015. "Managing financial risk in Chinese stock markets: Option pricing and modeling under a multivariate threshold autoregression," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 217-230.
    4. Mao, Xiuping & Ruiz, Esther & Veiga, Helena, 2017. "Threshold stochastic volatility: Properties and forecasting," International Journal of Forecasting, Elsevier, vol. 33(4), pages 1105-1123.
    5. Roberto Casarin & Domenico Sartore & Marco Tronzano, 2018. "A Bayesian Markov-Switching Correlation Model for Contagion Analysis on Exchange Rate Markets," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 36(1), pages 101-114, January.

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