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Estimation of stochastic volatility in the Hull-White model

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  • Shinichi Aihara

Abstract

Estimation of the stochastic volatility in the Hull-White framework is considered. Stock price is taken as the observation and the estimation problem is posed for the stochastic volatility. It is first shown that it is not possible to formulate this as the usual filtering problem, and an alternative formulation is proposed. A robust filtering equation is then derived suitable for real observation data.

Suggested Citation

  • Shinichi Aihara, 2000. "Estimation of stochastic volatility in the Hull-White model," Applied Mathematical Finance, Taylor & Francis Journals, vol. 7(3), pages 153-181.
    • Handle: RePEc:taf:apmtfi:v:7:y:2000:i:3:p:153-181
    DOI: 10.1080/13504860110046074
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    References listed on IDEAS

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    1. Ghysels, E. & Harvey, A. & Renault, E., 1995. "Stochastic Volatility," Papers 95.400, Toulouse - GREMAQ.
    2. Daniel B. Nelson, 1994. "Asymptotically Optimal Smoothing with ARCH Models," NBER Technical Working Papers 0161, National Bureau of Economic Research, Inc.
    3. Daniel B. Nelson, 1994. "Asymptotic Filtering Theory for Multivariate ARCH Models," NBER Technical Working Papers 0162, National Bureau of Economic Research, Inc.
    4. Nelson, Daniel B & Foster, Dean P, 1994. "Asymptotic Filtering Theory for Univariate ARCH Models," Econometrica, Econometric Society, vol. 62(1), pages 1-41, January.
    5. Hull, John C & White, Alan D, 1987. "The Pricing of Options on Assets with Stochastic Volatilities," Journal of Finance, American Finance Association, vol. 42(2), pages 281-300, June.
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