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Estimating the Wishart Affine Stochastic Correlation Model using the empirical characteristic function

Listed author(s):
  • Da Fonseca José

    ()

    (Department of Finance, Auckland University of Technology, Private Bag 92006, 1142 Auckland, New Zealand)

  • Grasselli Martino

    (Università degli Studi di Padova, Dipartimento di Matematica, Via Trieste 63, Padova, Italy; ESILV, Ecole Supérieure d’Ingénieurs Léonard de Vinci, Département Mathématiques et Ingénierie Financière, Paris La Défense, France; and QUANTA FINANZA S.R.L., Via Cappuccina 40, Mestre (Venezia), Italy)

  • Ielpo Florian

    (Lombard Odier Asset Management, avenue des Morgines 6, 1213 Petit Lancy, Switzerland and Université Paris 1 Sorbonne, 106 Boulevard de l’Hopital, 75013 Paris, France)

This paper provides the first estimation strategy for the Wishart Affine Stochastic Correlation (WASC) model. We provide elements showing that the use of empirical characteristic function-based estimates is advisable as this function is exponential affine in the WASC case. We use a GMM estimation strategy with a continuum of moment conditions based on the characteristic function. We present the estimation results obtained using a dataset of equity indexes. The WASC model captures most of the known stylized facts associated with financial markets, including leverage and asymmetric correlation effects.

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File URL: https://www.degruyter.com/view/j/snde.2014.18.issue-3/snde-2012-0009/snde-2012-0009.xml?format=INT
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Article provided by De Gruyter in its journal Studies in Nonlinear Dynamics & Econometrics.

Volume (Year): 18 (2014)
Issue (Month): 3 (May)
Pages: 1-37

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Handle: RePEc:bpj:sndecm:v:18:y:2014:i:3:p:37:n:1
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  1. Carrasco, Marine & Kotchoni, Rachidi, 2017. "Efficient Estimation Using The Characteristic Function," Econometric Theory, Cambridge University Press, vol. 33(02), pages 479-526, April.
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