Stochastic Volatility Model with Filtering
Authors:
Robert J. Elliott a;
Hong Miao a
| Affiliation: | a Haskayne School of Business, University of Calgary, Calgary, Alberta, Canada |
DOI:
10.1080/07362990600629389
Publication Frequency:
6 issues per year
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Abstract
We generalize the stochastic volatility model by allowing the volatility to follow different dynamics in different states of the world. The dynamics of the “states of the world” are represented by a Markov chain. We estimate all the parameters by using the filtering and the EM algorithms. Closed form estimates for all parameters are derived in this paper. These estimates can be updated using new information as it arrives.
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| Keywords: EM algorithm; Filtering; Markov switching; Stochastic volatility |
| Mathematics Subject Classification: 60J05; 93E11; 60G35 |
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