Publication Type
Journal Article
Version
publishedVersion
Publication Date
2002
Abstract
The stochastic volatility model has no closed form for its likelihood and hence the maximum likelihood estimation method is difficult to implement. However, it can be shown that the model has a known characteristic function. As a consequence, the model is estimable via the empirical characteristic function. In this paper, the characteristic function of the model is derived and the estimation procedure is discussed. An application is considered for daily returns of Australian/New Zealand dollar exchange rate. Model checking suggests that the stochastic volatility model together with the empirical characteristic function estimates fit the data well.
Discipline
Economics
Research Areas
Econometrics
Publication
Australian and New Zealand Journal of Statistics
Volume
44
Issue
3
First Page
319
Last Page
335
ISSN
1369-1473
Identifier
10.1111/1467-842x.00234
Publisher
Wiley
Citation
Knight, J.; Satchell, S.; and YU, Jun.
Estimation of the Stochastic Volatility Model by the Empirical Characteristic Function Method. (2002). Australian and New Zealand Journal of Statistics. 44, (3), 319-335.
Available at: https://ink.library.smu.edu.sg/soe_research/507
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1111/1467-842x.00234