Essays on Multivariate Stochastic Volatility Models

Released on by Sebastian Trojan
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  • Essays on Multivariate Stochastic Volatility Models Book Detail

  • Author : Sebastian Trojan
  • Release Date : 2015
  • Publisher :
  • Genre :
  • Pages : 0
  • ISBN 13 :
  • File Size : 3,3 MB
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Essays on Multivariate Stochastic Volatility Models by Sebastian Trojan PDF Summary

Book Description: The first essay describes a very general stochastic volatility (SV) model specification with leverage, heavy tails, skew and switching regimes, using realized volatility (RV) as an auxiliary time series to improve inference on latent volatility. The information content of the range and of implied volatility using the VIX index is also analyzed. Database is the S & P 500 index. Asymmetry in the observation error is modeled by the generalized hyperbolic skew Student-t distribution, whose heavy and light tail enable substantial skewness. Resulting number of regimes and dynamics differ dependent on the auxiliary volatility proxy and are investigated in-sample for the financial crash period 2008/09 in more detail. An out-of-sample study comparing predictive ability of various model variants for a calm and a volatile period yields insights about the gains on forecasting performance from different volatility proxies. Results indicate that including RV or the VIX pays off mostly in more volatile market conditions, whereas in calmer environments SV specifications using no auxiliary series outperform. The range as volatility proxy provides a superior in-sample fit, but its predictive performance is found to be weak. The second essay presents a high frequency stochastic volatility model. Price duration and associated absolute price change in event time are modeled contemporaneously to fully capture volatility on the tick level, combining the SV and stochastic conditional duration (SCD) model. Estimation is with IBM stock intraday data 2001/10 (decimalization completed), taking a minimum midprice threshold of a half tick. Persistent information flow is extracted, featuring a positively correlated innovation term and negative cross effects in the AR(1) persistence matrix. Additionally, regime switching in both duration and absolute price change is introduced to increase nonlinear capabilities of the model. Thereby, a separate price jump.

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Essays on Multivariate Volatility Models

Essays on Multivariate Volatility Models

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This thesis is an empirical study of how multivariate models can be applied to analyze the dependence between emerging financial markets and the US financial ma