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Bayesian estimation of an extended local scale stochastic volatility model

Philippe Deschamps

Journal of Econometrics, 2011, vol. 162, issue 2, 369-382

Abstract: A new version of the local scale model of Shephard (1994) is presented. Its features are identically distributed evolution equation disturbances, the incorporation of in-the-mean effects, and the incorporation of variance regressors. A Bayesian posterior simulator and a new simulation smoother are presented. The model is applied to publicly available daily exchange rate and asset return series, and is compared with t-GARCH and Lognormal stochastic volatility formulations using Bayes factors.

Keywords: State; space; models; Markov; chain; Monte; Carlo; Simulation; smoothing; Generalized; error; distribution; Generalized; t; distribution (search for similar items in EconPapers)
Date: 2011
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Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

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Handle: RePEc:eee:econom:v:162:y:2011:i:2:p:369-382