MARKOV SWITCHING SV PROCESSES IN MODELLING VOLATILITY OF FINANCIAL TIME SERIES

• Authors: Kwiatkowski Lukasz
• Languages of publication: EN

Abstracts

EN

This paper presents a Markov Switching Stochastic Volatility model (MSSV) as a specification of potential use in financial econometrics. The model may be viewed as a specific generalization of a well-known SV construction, that allows the parameters of the conditional volatility equation to switch between a predetermined number of states (regimes). The switching mechanism is driven by a homogenous discrete Markov chain. Without significant loss of generality the author restricts his analysis to two regimes only. Then he concentrates on the estimation procedure of a MSSV model, based on the Quasi-Maximum Likelihood approach presented by Smith in [18]. In order to calculate the quasi-log-likelihood function he considers a linear state-space representation of the MSSV model and employs a combination of the Kalman filter and Hamilton's filter procedures. Finally, four MSSV models and a standard SV model are estimated and compared in terms of goodness of fit to the 1-month WIBOR interest rates.

Keywords

EN

MARKOV SWITCHING; QUASI-MAXIMUM LIKELIHOOD ESTIMATION; STOCHASTIC VOLATILITY

Discipline

• ECONOMICS: ECONOMICS

• Publisher: Główny Urząd Statystyczny
• Journal: Przegląd Statystyczny
• Year: 2009
• Volume: 56
• Issue: 1
• Pages: 147-168
• Document type: ARTICLE

Contributors

author

Kwiatkowski Lukasz

• Lukasz Kwiatkowski, Uniwersytet Ekonomiczny w Krakowie, Katedra Ekonometrii, ul. Rakowicka 27, 31-510 Kraków, Poland

Identifiers

CEJSH db identifier

09PLAAAA070122