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Sequential Gibbs Particle Filter Algorithm with Applications to Stochastic Volatility and Jumps Estimation

Author

Listed:
  • Jiri Witzany

    (University of Economics in Prague, Faculty of Finance and Accounting, Prague, Czech Republic)

  • Milan Ficura

    (University of Economics in Prague, Faculty of Finance and Accounting, Prague, Czech Republic)

Abstract

The aim of this paper is to propose and test a novel Particle Filter method called Sequential Gibbs Particle Filter allowing to estimate complex latent state variable models with unknown parameters. The framework is applied to a stochastic volatility model with independent jumps in returns and volatility. The implementation is based on a new design of adapted proposal densities making convergence of the model relatively efficient as verified on a testing dataset. The empirical study applies the algorithm to estimate stochastic volatility with jumps in returns and volatility model based on the Prague stock exchange returns. The results indicate surprisingly weak jump in returns components and a relatively strong jump in volatility components with jumps in volatility appearing at the beginning of crisis periods.

Suggested Citation

  • Jiri Witzany & Milan Ficura, 2019. "Sequential Gibbs Particle Filter Algorithm with Applications to Stochastic Volatility and Jumps Estimation," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 69(5), pages 463-488, October.
    • Handle: RePEc:fau:fauart:v:69:y:2019:i:5:p:463-488
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    File URL: http://journal.fsv.cuni.cz/mag/article/show/id/1447
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    More about this item

    Keywords

    Bayesian methods; MCMC; Particle filters; stochastic volatility; jumps;
    All these keywords.

    JEL classification:

    • 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
    • G2 - Financial Economics - - Financial Institutions and Services

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