Publication Type

Journal Article

Version

Preprint

Publication Date

2010

Abstract

In this chapter we develop and implement a method for maximum simulated likelihood estimation of the continuous time stochastic volatility model with the constant elasticity of volatility. The approach does not require observations on option prices, nor volatility. To integrate out latent volatility from the joint density of return and volatility, a modified efficient importance sampling technique is used after the continuous time model is approximated using the Euler–Maruyama scheme. The Monte Carlo studies show that the method works well and the empirical applications illustrate usefulness of the method. Empirical results provide strong evidence against the Heston model.

Discipline

Econometrics

Research Areas

Econometrics

Publication

Advances in Econometrics

Volume

26

First Page

137

Last Page

161

ISSN

0731-9053

Identifier

10.1108/S0731-9053(2010)0000026009

Publisher

Emerald

Copyright Owner and License

Authors

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

https://doi.org/10.1108/S0731-9053(2010)0000026009

Included in

Econometrics Commons

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