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A common jump factor stochastic volatility model

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  • Laurini, Márcio Poletti
  • Mauad, Roberto Baltieri

Abstract

We introduce a new multivariate stochastic volatility model, based on the presence of a latent common factor with random jumps. The common factor is parameterized as a permanent component using a compound binomial process. This model can capture common jumps in the latent volatilities between markets, with particular relevance in the presence of crises and contagion in emerging markets.

Suggested Citation

  • Laurini, Márcio Poletti & Mauad, Roberto Baltieri, 2015. "A common jump factor stochastic volatility model," Finance Research Letters, Elsevier, vol. 12(C), pages 2-10.
  • Handle: RePEc:eee:finlet:v:12:y:2015:i:c:p:2-10
    DOI: 10.1016/j.frl.2014.12.009
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    References listed on IDEAS

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    1. Xu, Jiawen & Perron, Pierre, 2014. "Forecasting return volatility: Level shifts with varying jump probability and mean reversion," International Journal of Forecasting, Elsevier, vol. 30(3), pages 449-463.
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    3. Caporin, Massimiliano & Kolokolov, Aleksey & Renò, Roberto, 2014. "Multi-jumps," MPRA Paper 58175, University Library of Munich, Germany.
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    Cited by:

    1. repec:eee:jimfin:v:81:y:2018:i:c:p:20-39 is not listed on IDEAS
    2. repec:eee:dyncon:v:85:y:2017:i:c:p:59-89 is not listed on IDEAS
    3. Everaert, Gerdie & Iseringhausen, Martin, 2018. "Measuring the international dimension of output volatility," Journal of International Money and Finance, Elsevier, vol. 81(C), pages 20-39.
    4. Márcio Poletti Laurini & Roberto Baltieri Mauad & Fernando Antonio Lucena Aiube, 2016. "Multivariate Stochastic Volatility-Double Jump Model: an application for oil assets," Working Papers Series 415, Central Bank of Brazil, Research Department.

    More about this item

    Keywords

    Stochastic volatility; MCMC; Jump process; Regime changes;

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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