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Estimation of Stochastic Volatility Models with Heavy Tails and Serial Dependence

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  • Joshua C C Chan
  • Cody Y L Hsiao

Abstract

Financial time series often exhibit properties that depart from the usual assumptions of serial independence and normality. These include volatility clustering, heavy-tailedness and serial dependence. A voluminous literature on different approaches for modeling these empirical regularities has emerged in the last decade. In this paper we review the estimation of a variety of highly flexible stochastic volatility models, and introduce some efficient algorithms based on recent advances in state space simulation techniques. These estimation methods are illustrated via empirical examples involving precious metal and foreign exchange returns. The corresponding Matlab code is also provided.

Suggested Citation

  • Joshua C C Chan & Cody Y L Hsiao, 2013. "Estimation of Stochastic Volatility Models with Heavy Tails and Serial Dependence," CAMA Working Papers 2013-74, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2013-74
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2013-11/74_2013_chan_hsiao.pdf
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    References listed on IDEAS

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    7. Chan, Joshua C.C., 2013. "Moving average stochastic volatility models with application to inflation forecast," Journal of Econometrics, Elsevier, vol. 176(2), pages 162-172.
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    More about this item

    Keywords

    stochastic volatility; scale mixture of normal; state space model; Markov chain Monte Carlo; financial data;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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