Application of Kalman Filter to Stochastic Volatility Models of the Orstein‑Uhlenbeck Type

Authors

  • Piotr Szczepocki Uniwersytet Łódzki, Wydział Ekonomiczno‑Socjologiczny, Katedra Metod Statystycznych

DOI:

https://doi.org/10.18778/0208-6018.337.12

Keywords:

stochastic volatility models, Levy processes

Abstract

Barndorff‑Nielsen and Shephard (2001) proposed a class of stochastic volatility models in which the volatility process is the Ornstein‑Uhlenbeck process driven by a Levy process without gaussian component. Parameter estimation of these models is difficult because the appropriate likelihood functions do not have a closed‑form expression. The article deals with application of the Kalman filter technique for parameter estimation of such models. The method is applied to EUR/PLN daily exchange rate data. Empirical application is accompanied with simulation study to examine statistical properties of the estimators.

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Published

2018-09-20

How to Cite

Szczepocki, P. (2018). Application of Kalman Filter to Stochastic Volatility Models of the Orstein‑Uhlenbeck Type. Acta Universitatis Lodziensis. Folia Oeconomica, 4(337), 183–201. https://doi.org/10.18778/0208-6018.337.12

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