The Split-SV model

Vladica S. Stojanović, Biljana Č. Popović and Gradimir V. Milovanović

Computational Statistics & Data Analysis, 2016, vol. 100, issue C, 560-581

Abstract: A modification of one of the most popular stochastic model in describing financial indexes dynamics is introduced. For describing a nonlinear behavior of volatility, a threshold noise indicator in the autoregressive time series of stochastic volatility is used. Toward this end, the model named the Split-SV model is introduced and its basic stochastic properties are investigated. Furthermore, the Empirical Characteristic Function (ECF) method is used for obtaining the parameter estimations of the model and a numerical simulation of the obtained estimates is given as well. Finally, the Split-SV model is applied for fitting the empirical data: the daily returns of the exchange rates of GBP and USD per euro.

Keywords: Split-SV process; Noise-indicator; Contaminated Gaussian distribution; Convolutions; Empirical characteristic function estimation (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:csdana:v:100:y:2016:i:c:p:560-581

DOI: 10.1016/j.csda.2014.08.010

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