Abstract
In this chapter we estimate the stochastic volatility model with jumps in return and volatility introduced by [7]. In this model the conditional volatility of returns can not only increase rapidly but also persistently. Moreover, as shown by [8], this new model performs better than previous models presenting almost no misspecification in the volatility process. We implement the model coding the algorithm using R language. We estimate the model parameters and latent variables using FTSE 100 daily returns. The values of some of our estimated parameters are close to values found in previous studies. Also, as expected, our estimated state variable paths show high probabilities of jumps in the periods of financial crisis.
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Numatsi, A., Rengifo, E.W. (2010). Stochastic Volatility Model with Jumps in Returns and Volatility: An R-Package Implementation. In: Vinod, H. (eds) Advances in Social Science Research Using R. Lecture Notes in Statistics(), vol 196. Springer, New York, NY. https://doi.org/10.1007/978-1-4419-1764-5_12
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DOI: https://doi.org/10.1007/978-1-4419-1764-5_12
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