Home » Modeling Stochastic Volatility with Application to Stock Returns by Noureddine Krichene
Modeling Stochastic Volatility with Application to Stock Returns Noureddine Krichene

Modeling Stochastic Volatility with Application to Stock Returns

Noureddine Krichene

Published June 1st 2003
ISBN : 9781282110717
ebook
60 pages
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 About the Book 

A stochastic volatility model where volatility was driven solely by a latent variable called news was estimated for three stock indices. A Markov chain Monte Carlo algorithm was used for estimating Bayesian parameters and filtering volatilities.MoreA stochastic volatility model where volatility was driven solely by a latent variable called news was estimated for three stock indices. A Markov chain Monte Carlo algorithm was used for estimating Bayesian parameters and filtering volatilities. Volatility persistence being close to one was consistent with both volatility clustering and mean reversion. Filtering showed highly volatile markets, reflecting frequent pertinent news. Diagnostics showed no model failure, although specification improvements were always possible. The model corroborated stylized findings in volatility modeling and has potential value for market participants in asset pricing and risk management, as well as for policymakers in the design of macroeconomic policies conducive to less volatile financial markets.