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Asymmetric stochastic volatility models: Properties and particle filter-based simulated maximum likelihood estimation

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  • Mao, Xiuping
  • Czellar, Veronika
  • Ruiz, Esther
  • Veiga, Helena

Abstract

The statistical properties of a general family of asymmetric stochastic volatility (A-SV) models which capture the leverage effect in financial returns are derived providing analytical expressions of moments and autocorrelations of power-transformed absolute returns. The parameters of the A-SV model are estimated by a particle filter-based simulated maximum likelihood estimator and Monte Carlo simulations are carried out to validate it. It is shown empirically that standard SV models may significantly underestimate the value-at-risk of weekly S&P 500 returns at dates following negative returns and overestimate it after positive returns. By contrast, the general specification proposed provide reliable forecasts at all dates. Furthermore, based on daily S&P 500 returns, it is shown that the most adequate specification of the asymmetry can change over time.

Suggested Citation

  • Mao, Xiuping & Czellar, Veronika & Ruiz, Esther & Veiga, Helena, 2020. "Asymmetric stochastic volatility models: Properties and particle filter-based simulated maximum likelihood estimation," Econometrics and Statistics, Elsevier, vol. 13(C), pages 84-105.
    • Handle: RePEc:eee:ecosta:v:13:y:2020:i:c:p:84-105
    DOI: 10.1016/j.ecosta.2019.08.002
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