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Estimation methods for stochastic volatility models: a survey

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Listed author(s):
  • Ruiz, Esther
  • Broto, Carmen

Abstract

The empirical application of Stochastic Volatility (SV) models has been limited due to the difficulties involved in the evaluation of the likelihood function. However, recently there has been fundamental progress in this area due to the proposal of several new estimation methods that try to overcome this problem, being at the same time, empirically feasible. As a consequence, several extensions of the SV models have been proposed and their empirical implementation is increasing. In this paper, we review the main estimators of the parameters and the volatility of univariate SV models proposed in the literature. We describe the main advantages and limitations of each of the methods both from the theoretical and empirical point of view. We complete the survey with an application of the most important procedures to the S and P 500 stock price index.

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Paper provided by Universidad Carlos III de Madrid. Departamento de Estadística in its series DES - Working Papers. Statistics and Econometrics. WS with number ws025414.

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Date of creation: Nov 2002
Handle: RePEc:cte:wsrepe:ws025414
Contact details of provider: Web page: http://portal.uc3m.es/portal/page/portal/dpto_estadistica

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