A common jump factor stochastic volatility model

Márcio Laurini and Roberto Mauad

Finance Research Letters, 2015, vol. 12, issue C, 2-10

Abstract: We introduce a new multivariate stochastic volatility model, based on the presence of a latent common factor with random jumps. The common factor is parameterized as a permanent component using a compound binomial process. This model can capture common jumps in the latent volatilities between markets, with particular relevance in the presence of crises and contagion in emerging markets.

Keywords: Stochastic volatility; MCMC; Jump process; Regime changes (search for similar items in EconPapers)
JEL-codes: C53 C58 E43 G17 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:12:y:2015:i:c:p:2-10

DOI: 10.1016/j.frl.2014.12.009

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