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Stylized Facts and Discrete Stochastic Volatility Models

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  • Alin Sima

Abstract

This paper highlights the ability of the discrete stochastic volatility models to predict some important properties of the data, i.e. leptokurtic distribution of the returns, slowly decaying autocorrelation function of squared returns, the Taylor effect and the asymmetric response of volatility to return shocks. Although, there are many methods proposed for stochastic volatility model estimation, in this paper Markov Chain Monte Carlo techniques were considered. It was found that the existent specifications in the stochastic volatility literature are consistent with the empirical properties of the data. Thus, from this point of view the discrete stochastic volatility models are reliable tools for volatility estimation.

Suggested Citation

  • Alin Sima, 2008. "Stylized Facts and Discrete Stochastic Volatility Models," Advances in Economic and Financial Research - DOFIN Working Paper Series 10, Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB.
    • Handle: RePEc:cab:wpaefr:10
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    File URL: http://www.dofin.ase.ro/Working%20papers/Sima%20Alin/alin.sima.dissertation.pdf
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    References listed on IDEAS

    as
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    discrete stochastic volatility models;

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