IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

A Non-linear Filtering Approach to Stochastic Volatility Models with an Application to Daily Stock Returns

Listed author(s):
  • Watanabe, Toshiaki
Registered author(s):

    This paper develops a new method for the analysis of stochastic volatility (SV) models. Since volatility is a latent variable in SV models, it is difficult to evaluate the exact likelihood. In this paper, a non-linear filter which yields the exact likelihood of SV models is employed. Solving a series of integrals in this filter by piecewise linear approximations with randomly chosen nodes produces the likelihood, which is maximized to obtain estimates of the SV parameters. A smoothing algorithm for volatility estimation is also constructed. Monte Carlo experiments show that the method performs well with respect to both parameter estimates and volatility estimates. We illustrate the method by analysing daily stock returns on the Tokyo Stock Exchange. Since the method can be applied to more general models, the SV model is extended so that several characteristics of daily stock returns are allowed, and this more general model is also estimated.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    File Function: Supporting data files and programs
    Download Restriction: no

    Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

    Volume (Year): 14 (1999)
    Issue (Month): 2 (March-April)
    Pages: 101-121

    in new window

    Handle: RePEc:jae:japmet:v:14:y:1999:i:2:p:101-21
    Contact details of provider: Web page:

    Order Information: Web: Email:

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:jae:japmet:v:14:y:1999:i:2:p:101-21. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

    or (Christopher F. Baum)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.