๐”– Bobbio Scriptorium
โœฆ   LIBER   โœฆ

An empirical application of stochastic volatility models

โœ Scribed by Ronald J. Mahieu; Peter C. Schotman

Publisher
John Wiley and Sons
Year
1998
Tongue
English
Weight
335 KB
Volume
13
Category
Article
ISSN
0883-7252

No coin nor oath required. For personal study only.

โœฆ Synopsis

This paper studies the empirical performance of stochastic volatility models for twenty years of weekly exchange rate data for four major currencies. We concentrate on the eects of the distribution of the exchange rate innovations for both parameter estimates and for estimates of the latent volatility series. The density of the log of squared exchange rate innovations is modelled as a ยฏexible mixture of normals. We use three dierent estimation techniques: quasi-maximum likelihood, simulated EM, and a Bayesian procedure. The estimated models are applied for pricing currency options. The major ยฎndings of the paper are that:

(1) explicitly incorporating fat-tailed innovations increases the estimates of the persistence of volatility dynamics; (2) the estimation error of the volatility time series is very large; (3) this in turn causes standard errors on calculated option prices to be so large that these prices are rarely signiยฎcantly dierent from a model with constant volatility.

๐Ÿ“œ SIMILAR VOLUMES

Application in stochastic volatility mod
Application in stochastic volatility models of nonlinear regression with stochastic design
โœ Ping Chen; Jinde Wang ๐Ÿ“‚ Article ๐Ÿ“… 2010 ๐Ÿ› John Wiley and Sons ๐ŸŒ English โš– 267 KB ๐Ÿ‘ 1 views

## Abstract In regression model with stochastic design, the observations have been primarily treated as a simple random sample from a bivariate distribution. It is of enormous practical significance to generalize the situation to stochastic processes. In this paper, estimation and hypothesis testin

Estimation of integrated volatility in s
Estimation of integrated volatility in stochastic volatility models
โœ Jeannette H. C. Woerner ๐Ÿ“‚ Article ๐Ÿ“… 2005 ๐Ÿ› John Wiley and Sons ๐ŸŒ English โš– 182 KB ๐Ÿ‘ 1 views

Institut f . u ur Mathematische Stochastik, Universit . a at G . o ottingen, Maschm . u uhlenweg 8-10, D-37073 G . o ottingen, Germany

A non-linear filtering approach to stoch
A non-linear filtering approach to stochastic volatility models with an application to daily stock returns
โœ Toshiaki Watanabe ๐Ÿ“‚ Article ๐Ÿ“… 1999 ๐Ÿ› John Wiley and Sons ๐ŸŒ English โš– 199 KB ๐Ÿ‘ 2 views

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 dicult to evaluate the exact likelihood. In this paper, a non-linear ยฎlter which yields the exact likelihood of SV models is employed. Solving a series of

A maximal affine stochastic volatility m
A maximal affine stochastic volatility model of oil prices
โœ W. Keener Hughen ๐Ÿ“‚ Article ๐Ÿ“… 2009 ๐Ÿ› John Wiley and Sons ๐ŸŒ English โš– 333 KB

## Abstract This study develops and estimates a stochastic volatility model of commodity prices that nests many of the previous models in the literature. The model is an affine threeโ€factor model with one state variable driving the volatility and is maximal among all such models that are also ident

A new scheme for static hedging of Europ
A new scheme for static hedging of European derivatives under stochastic volatility models
โœ Akihiko Takahashi; Akira Yamazaki ๐Ÿ“‚ Article ๐Ÿ“… 2009 ๐Ÿ› John Wiley and Sons ๐ŸŒ English โš– 138 KB

## Abstract This study proposes a new scheme for static hedging of European pathโ€independent derivatives under stochastic volatility models. First, we show that pricing European pathโ€independent derivatives under stochastic volatility models is transformed to pricing those under oneโ€factor local vo