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Stochastic volatility with leverage: fast likelihood inference

Author

Listed:
  • Neil Shephard
  • Yashurio Omori
  • Faculty of Economics
  • University of Tokyo
  • Siddhartha Chib
  • Olin School of Business
  • Washington University
  • Jouchi Nakajima
  • Faculty of Economics
  • University of Tokyo

Abstract

Kim, Shephard, and Chib (1998) provided a Bayesian analysis of stochastic volatility models based on a fast and reliable Markov chain Monte Carlo (MCMC) algorithm. Their method rules out the leverage effect, which is known to be important in applications. Despite this, their basic method has been extensively used in the financial economics literature and more recently in macroeconometrics. In this paper we show how the basic approach can be extended in a novel way to stochastic volatility models with leverage without altering the essence of the original approach. Several illustrative examples are provided.

Suggested Citation

  • Neil Shephard & Yashurio Omori & Faculty of Economics & University of Tokyo & Siddhartha Chib & Olin School of Business & Washington University & Jouchi Nakajima & Faculty of Economics & University of, 2004. "Stochastic volatility with leverage: fast likelihood inference," Economics Series Working Papers 2004-FE-16, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:2004-fe-16
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    Cited by:

    1. Kitsul, Yuriy & Wright, Jonathan H., 2013. "The economics of options-implied inflation probability density functions," Journal of Financial Economics, Elsevier, vol. 110(3), pages 696-711.
    2. Toshitaka Sekine, 2006. "Time-varying exchange rate pass-through: experiences of some industrial countries," BIS Working Papers 202, Bank for International Settlements.
    3. Fruhwirth-Schnatter, Sylvia & Fruhwirth, Rudolf, 2007. "Auxiliary mixture sampling with applications to logistic models," Computational Statistics & Data Analysis, Elsevier, vol. 51(7), pages 3509-3528, April.
    4. Jun Yu, 2007. "Automated Likelihood Based Inference for Stochastic Volatility Models," Working Papers 01-2007, Singapore Management University, Sim Kee Boon Institute for Financial Economics.
    5. Fulvia Focker & Umberto Triacca, 2006. "A new proxy of the average volatility of a basket of returns: A Monte Carlo study," Economics Bulletin, AccessEcon, vol. 3(15), pages 1-14.
    6. Ishihara, Tsunehiro & Omori, Yasuhiro & Asai, Manabu, 2016. "Matrix exponential stochastic volatility with cross leverage," Computational Statistics & Data Analysis, Elsevier, vol. 100(C), pages 331-350.
    7. Hang Pham, 2020. "Estimating the Output Gap for Emerging Countries: Evidence from Five Southeast Asia Countries," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 7(2), pages 61-73.

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