No. 1049

Title:

An Estimation Scheme of Time-varying Volatility Using the Stochastic Volatility Model by Local Linearization Technique

Author(s):

Yamashita, Takashi (Department of Statistical Science The graduate University for Advanced Studies 4-6-7 Minami-Azabu, Minato-ku, Tokyo 106-8569, Japan);
Ozaki, Tohru (Department of Statistical Science The graduate University for Advanced Studies 4-6-7 Minami-Azabu, Minato-ku, Tokyo 106-8569, Japan)

Key words:

stochastic volatility; ito calculus; local linearization; kalman filter

Abstract:

    The purpose of this study is proposing a new scheme of estimating time-varying volatility by the autoregressive stochastic volatility model. This scheme uses Ito's stochastic calculus and Ozaki's local linearization technique. This scheme was easy to estimate and good fitness performance from the result of some simulation tests. I suggested that availableness of stochastic volatility model is significantly improved by this scheme.