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Multi-variate stochastic volatility modelling using Wishart autoregressive processes

Authors


K. Triantafyllopoulos, School of Mathematics and Statistics, University of Sheffield, Sheffield, S3 7RH, UK.

Abstract

A new multi-variate stochastic volatility estimation procedure for financial time series is proposed. A Wishart autoregressive process is considered for the volatility precision covariance matrix, for the estimation of which a two step procedure is adopted. The first step is the conditional inference on the autoregressive parameters and the second step is the unconditional inference, based on a Newton-Raphson iterative algorithm. The proposed methodology, which is mostly Bayesian, is suitable for medium dimensional data and it bridges the gap between closed-form estimation and simulation-based estimation algorithms. An example, consisting of foreign exchange rates data, illustrates the proposed methodology.

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