The continuous-time limit of quasi score-driven volatility models
Fuente:
arXiv
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| Autores principales: | , |
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| Formato: | Preprint |
| Publicado: |
2024
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| Acceso en línea: | |
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| _version_ | 1866912413511581696 |
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| author | Wu, Yinhao He, Ping |
| author_facet | Wu, Yinhao He, Ping |
| contents | This paper explores the continuous-time limit of a class of Quasi Score-Driven (QSD) models that characterize volatility. As the sampling frequency increases and the time interval tends to zero, the model weakly converges to a continuous-time stochastic volatility model where the two Brownian motions are correlated, thereby capturing the leverage effect in the market. Subsequently, we identify that a necessary condition for non-degenerate correlation is that the distribution of driving innovations differs from that of computing score, and at least one being asymmetric. We then illustrate this with two typical examples. As an application, the QSD model is used as an approximation for correlated stochastic volatility diffusions and quasi maximum likelihood estimation is performed. Simulation results confirm the method's effectiveness, particularly in estimating the correlation coefficient. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2409_14734 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | The continuous-time limit of quasi score-driven volatility models Wu, Yinhao He, Ping Probability Econometrics This paper explores the continuous-time limit of a class of Quasi Score-Driven (QSD) models that characterize volatility. As the sampling frequency increases and the time interval tends to zero, the model weakly converges to a continuous-time stochastic volatility model where the two Brownian motions are correlated, thereby capturing the leverage effect in the market. Subsequently, we identify that a necessary condition for non-degenerate correlation is that the distribution of driving innovations differs from that of computing score, and at least one being asymmetric. We then illustrate this with two typical examples. As an application, the QSD model is used as an approximation for correlated stochastic volatility diffusions and quasi maximum likelihood estimation is performed. Simulation results confirm the method's effectiveness, particularly in estimating the correlation coefficient. |
| title | The continuous-time limit of quasi score-driven volatility models |
| topic | Probability Econometrics |
| url | https://arxiv.org/abs/2409.14734 |