Continuous-time stochastic volatility models are becoming increasingly popular in finance because of their flexibility in accommodating most stylized facts of financial time series. However, their estimation is difficult because the likelihood function does not have a closed-form expression. In this paper we propose a characteristic function-based estimation method for non-Gaussian Ornstein-Uhlenbeck-based stochastic volatility models. After deriving explicit expressions of the characteristic functions for various cases of interest we analyze the asymptotic properties of the estimators and evaluate their performance by means of a simulation experiment. Finally, a real-data application shows that the superposition of two Ornstein-Uhlenbeck processes gives a good approximation to the dependence structure of the process.

Characteristic Function Estimation of Ornstein-Uhlenbeck-Based Stochastic Volatility Models / Taufer, Emanuele; Leonenko, Nikolai; Bee, Marco. - ELETTRONICO. - (2009), pp. 1-30.

Characteristic Function Estimation of Ornstein-Uhlenbeck-Based Stochastic Volatility Models

Taufer, Emanuele;Bee, Marco
2009-01-01

Abstract

Continuous-time stochastic volatility models are becoming increasingly popular in finance because of their flexibility in accommodating most stylized facts of financial time series. However, their estimation is difficult because the likelihood function does not have a closed-form expression. In this paper we propose a characteristic function-based estimation method for non-Gaussian Ornstein-Uhlenbeck-based stochastic volatility models. After deriving explicit expressions of the characteristic functions for various cases of interest we analyze the asymptotic properties of the estimators and evaluate their performance by means of a simulation experiment. Finally, a real-data application shows that the superposition of two Ornstein-Uhlenbeck processes gives a good approximation to the dependence structure of the process.
2009
Trento
University of Trento - Dipartimento di Informatica e Studi Aziendali
Characteristic Function Estimation of Ornstein-Uhlenbeck-Based Stochastic Volatility Models / Taufer, Emanuele; Leonenko, Nikolai; Bee, Marco. - ELETTRONICO. - (2009), pp. 1-30.
Taufer, Emanuele; Leonenko, Nikolai; Bee, Marco
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11572/358532
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