Simulating Bivariate Stationary Processes with Scale-Specific Characteristics

Milan Bašta

Acta Oeconomica Pragensia, 2014, vol. 2014, issue 1, 3-26

Abstract: By modifying and generalizing the wavelet-based approach of approximately simulating univariate long-memory processes that is available in the literature, we propose a methodology for simulating a bivariate stationary process, whose components exhibit different relationships at different scales. We derive the formulas for the autocovariance and cross-covariance sequences of the simulated bivariate process. We provide a setting for the parameters of the simulation which might generate a bivariate time series resembling that of stock log returns. Using this setting, we study the properties of our methodology via Monte Carlo simulation.

Keywords: time series; bivariate; wavelets; finance (search for similar items in EconPapers)
JEL-codes: C32 C49 C53 C58 G10 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.18267/j.aop.423

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