Estimating Correlated Jumps and Stochastic Volatilities
AbstractWe formulate a bivariate stochastic volatility jump-diffusion model with correlated jumps and volatilities. An MCMC Metropolis-Hastings sampling algorithm is proposed to estimate the model’s parameters and latent state variables (jumps and stochastic volatilities) given observed returns. The methodology is successfully tested on several artificially generated bivariate time series and then on the two most important Czech domestic financial market time series of the FX (CZK/EUR) and stock (PX index) returns. Four bivariate models with and without jumps and/or stochastic volatility are compared using the deviance information criterion (DIC) confirming importance of incorporation of jumps and stochastic volatility into the model.
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Bibliographic InfoPaper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2011/35.
Length: 31 pages
Date of creation: Nov 2011
Date of revision: Nov 2011
jump-diffusion; stochastic volatility; MCMC; Value at Risk; Monte Carlo;
Other versions of this item:
- Jiří Witzany, 2013. "Estimating Correlated Jumps and Stochastic Volatilities," Prague Economic Papers, University of Economics, Prague, vol. 2013(2), pages 251-283.
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- G1 - Financial Economics - - General Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-28 (All new papers)
- NEP-ECM-2011-11-28 (Econometrics)
- NEP-ETS-2011-11-28 (Econometric Time Series)
- NEP-MST-2011-11-28 (Market Microstructure)
- NEP-ORE-2011-11-28 (Operations Research)
- NEP-RMG-2011-11-28 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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