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The Split-SV model

Author

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  • Stojanović, Vladica S.
  • Popović, Biljana Č.
  • Milovanović, Gradimir V.

Abstract

A modification of one of the most popular stochastic model in describing financial indexes dynamics is introduced. For describing a nonlinear behavior of volatility, a threshold noise indicator in the autoregressive time series of stochastic volatility is used. Toward this end, the model named the Split-SV model is introduced and its basic stochastic properties are investigated. Furthermore, the Empirical Characteristic Function (ECF) method is used for obtaining the parameter estimations of the model and a numerical simulation of the obtained estimates is given as well. Finally, the Split-SV model is applied for fitting the empirical data: the daily returns of the exchange rates of GBP and USD per euro.

Suggested Citation

  • Stojanović, Vladica S. & Popović, Biljana Č. & Milovanović, Gradimir V., 2016. "The Split-SV model," Computational Statistics & Data Analysis, Elsevier, vol. 100(C), pages 560-581.
    • Handle: RePEc:eee:csdana:v:100:y:2016:i:c:p:560-581
    DOI: 10.1016/j.csda.2014.08.010
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