EconPapers    
Economics at your fingertips  
 

Cholesky Realized Stochastic Volatility Model

Shinichiro Shirota, Yasuhiro Omori (), Hedibert. F. Lopes and Haixiang Piao
Additional contact information
Shinichiro Shirota: Department of Statistical Science, Duke University
Hedibert. F. Lopes: Insper Institute of Education and Research
Haixiang Piao: Nippon Life Insurance Company

No CIRJE-F-1019, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: Multivariate stochastic volatility models with leverage are expected to play important roles in financial applications such as asset allocation and risk management. However, these models suffer from two major difficulties: (1) there are too many parameters to estimate by using only daily asset returns and (2) estimated covariance matrices are not guaranteed to be positive definite. Our approach takes advantage of realized covariances to achieve the efficient estimation of parameters by incorporating additional information for the co-volatilities, and considers Cholesky decomposition to guarantee the positive definiteness of the covariance matrices. In this framework, a exible model is proposed for stylized facts of financial markets, such as dynamic correlations and leverage effects among volatilities. By using the Bayesian approach, Markov Chain Monte Carlo implementation is described with a simple but efficient sampling scheme. Our model is applied to the data of nine U.S. stock returns, and it is compared with other models on the basis of portfolio performances.

New Economics Papers: this item is included in nep-ets and nep-rmg
Date: 2016-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.cirje.e.u-tokyo.ac.jp/research/dp/2016/2016cf1019.pdf (application/pdf)

Related works:
Journal Article: Cholesky realized stochastic volatility model (2017) Downloads
Working Paper: Cholesky Realized Stochastic Volatility Model (2015) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2016cf1019

Access Statistics for this paper

More papers in CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo Contact information at EDIRC.
Bibliographic data for series maintained by CIRJE administrative office ().

 
Page updated 2019-11-14
Handle: RePEc:tky:fseres:2016cf1019