Nonlinear Stochastic Volatility Model with Leverage Effect and its Application
Meng Li-feng · Journal of systems management · 2009
A kind of nonlinear stochastic volatility(SV) model was proposed,many discrete time SV models are its special cases.The advantage of this kind of model is the ease with which different specification on stochastic volatility can be tested.The specification test is based on a single parameter δ.On the basis of nonlinear SV model,the nonlinear SV model with leverage effect was expanded.Using BUGS software,MCMC method with Gibbs sampling is used to estimate the new SV model.We empirically tested logarithm normal SV model against the new one using daily index return data in Shanghai and Shenzhen stock markets.The empirical test rejects logarithm normal SV model and favor the nonlinear SV model.