Nonlinear Filtering for Stochastic Volatility Models with Heavy Tails and Leverage
This paper develops a computationally efficient filtering based procedure for the estimation of the heavy tailed SV model with leverage. While there are many accepted techniques for the estimation of standard SV models, incorporating these effects into an SV framework is difficult. Simulation evidence provided in this paper indicates that the proposed procedure outperforms competing approaches in terms of the accuracy of parameter estimation. In an empirical setting, it is shown how the individual effects of heavy tails and leverage can be isolated using standard likelihood ratio tests.
|Date of creation:||15 Jun 2005|
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- Scott I. White & Adam E. Clements & Stan Hurn, 2004. "Discretised Non-Linear Filtering for Dynamic Latent Variable Models: with Application to Stochastic Volatility," Econometric Society 2004 Australasian Meetings 46, Econometric Society.
- Ruiz, Esther, 1994. "Quasi-maximum likelihood estimation of stochastic volatility models," Journal of Econometrics, Elsevier, vol. 63(1), pages 289-306, July. Full references (including those not matched with items on IDEAS)
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