Generalized Method of Moments Estimation of Realized Stochastic Volatility Model

Luwen Zhang and Li Wang ()
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Luwen Zhang: School of Computer Science and Engineering, Faculty of Innovation Engineering, Macau University of Science and Technology, Avenida Wai Long, Taipa, Macau 999078, China
Li Wang: School of Computer Science and Engineering, Faculty of Innovation Engineering, Macau University of Science and Technology, Avenida Wai Long, Taipa, Macau 999078, China

JRFM, 2023, vol. 16, issue 8, 1-12

Abstract: The purpose of this paper is to study the generalized method of moments (GMM) estimation procedures of the realized stochastic volatility model; we give the moment conditions for this model and then obtain the estimation of parameters. Then, we apply these moment conditions to the realized stochastic volatility model to improve the volatility prediction effect. This paper selects the Shanghai Composite Index (SSE) as the original data of model research and completes the volatility prediction under a realized stochastic volatility model. Markov chain Monte Carlo (MCMC) estimation and quasi-maximum likelihood (QML) estimation are applied to the parameter estimation of the realized stochastic volatility model to compare with the GMM method. And the volatility prediction accuracy of these three different methods is compared. The results of empirical research show that the effect of model prediction using the parameters obtained by the GMM method is close to that of the MCMC method, and the effect is obviously better than that of the quasi-maximum likelihood estimation method.

Keywords: realized stochastic volatility model; generalized method of moments (GMM); Markov chain Monte Carlo (MCMC); quasi-maximum likelihood (QML); high-frequency data (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
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