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A Neural Stochastic Volatility Model

Rui Luo, Weinan Zhang, Xiaojun Xu and Jun Wang

Papers from arXiv.org

Abstract: In this paper, we show that the recent integration of statistical models with deep recurrent neural networks provides a new way of formulating volatility (the degree of variation of time series) models that have been widely used in time series analysis and prediction in finance. The model comprises a pair of complementary stochastic recurrent neural networks: the generative network models the joint distribution of the stochastic volatility process; the inference network approximates the conditional distribution of the latent variables given the observables. Our focus here is on the formulation of temporal dynamics of volatility over time under a stochastic recurrent neural network framework. Experiments on real-world stock price datasets demonstrate that the proposed model generates a better volatility estimation and prediction that outperforms mainstream methods, e.g., deterministic models such as GARCH and its variants, and stochastic models namely the MCMC-based model \emph{stochvol} as well as the Gaussian process volatility model \emph{GPVol}, on average negative log-likelihood.

New Economics Papers: this item is included in nep-big, nep-cmp, nep-ecm, nep-ets and nep-rmg
Date: 2017-11, Revised 2018-12
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