The Memory of Stochastic Volatility Models
AbstractA valid asymptotic expansion for the covariance of functions of multivariate normal vectors is applied to approximate autovariances of time series generated by nonlinear transformation of Gaussian latent variates, and nonlinear functions of these, with special reference to long memory stochastic volatility models, serving to identify the roles played by the underlying Gaussian processes and the nonlinear transformation. Implications for simple stochastic volatility models are examined in detail, with numerical and Monte Carlo calculations, and applications to cyclic behaviour, cross-sectional and temporal aggregation, and multivariate models are discussed.
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Bibliographic InfoPaper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Econometrics Paper Series with number /2001/410.
Date of creation: Feb 2001
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Stochastic volatility; long memory; nonlinear functions of Gaussian processes;
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Cahiers de recherche
9613, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
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