Indirect inference methods for stochastic volatility models based on non-Gaussian Ornstein-Uhlenbeck processes

Arvid Raknerud and Øivind Skare ()
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Øivind Skare: Statistics Norway, https://www.ssb.no/en/forskning/ansatte

Discussion Papers from Statistics Norway, Research Department

Abstract: This paper aims to develop new methods for statistical inference in a class of stochastic volatility models for financial data based on non-Gaussian Ornstein-Uhlenbeck (OU) processes. Our approach uses indirect inference methods: First, a quasi-likelihood for the actual data is estimated. This quasi-likelihood is based on an approximative Gaussian state space representation of the OU-based model. Next, simulations are made from the data generating OU-model for given parameter values. The indirect inference estimator is the parameter value in the OU-model which gives the best "match" between the quasi-likelihood estimator for the actual data and the quasi-likelihood estimator for the simulated data. Our method is applied to Euro/NOK and US Dollar/NOK daily exchange rates for the period 1.7.1989 until 15.12.2008. Accompanying R-package, that interfaces C++ code is documented and can be downloaded.

Keywords: stochastic volatility; financial econometrics; Ornstein-Uhlenbeck processes; indirect inference; state space models; exchange rates (search for similar items in EconPapers)
JEL-codes: C13 C22 C51 G10 (search for similar items in EconPapers)
Date: 2009-12
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:ssb:dispap:601

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