Bayesian estimation of an extended local scale stochastic volatility model |
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Authors: | Philippe J Deschamps |
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Institution: | a Séminaire d’économétrie, Université de Fribourg, Boulevard de Pérolles 90, CH-1700 Fribourg, Switzerland |
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Abstract: | A new version of the local scale model of Shephard (1994) is presented. Its features are identically distributed evolution equation disturbances, the incorporation of in-the-mean effects, and the incorporation of variance regressors. A Bayesian posterior simulator and a new simulation smoother are presented. The model is applied to publicly available daily exchange rate and asset return series, and is compared with t-GARCH and Lognormal stochastic volatility formulations using Bayes factors. |
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Keywords: | State space models Markov chain Monte Carlo Simulation smoothing Generalized error distribution Generalized t distribution |
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