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Matrix Exponential Stochastic Volatility with Cross Leverage

Listed author(s):
  • Tsunehiro Ishihara

    (Graduate School of Economics, University of Tokyo)

  • Yasuhiro Omori

    (Faculty of Economics, University of Tokyo)

  • Manabu Asai

    (Faculty of Economics, Soka University)

A multivariate stochastic volatility model with dynamic correlation and leverage effect is described and estimated. The matrix exponential transformation is used to keep the time-varying covariance matrices positive definite. An efficient Bayesian estimation method using Markov chain Monte Carlo is proposed. Of particular interest is our approach for sampling the latent state variables from the conditional posterior distribution, using a blocked multi-move Metropolis-Hastings sampling, in which the proposal density is derived from an approximating linear Gaussian state space model. The proposed model is applied to the daily stock price index, the Japanese bond price index, and the Yen/USD exchange rate returns data.

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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-812.

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Length: 37 pages
Date of creation: Aug 2011
Handle: RePEc:tky:fseres:2011cf812
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