Toward a Bayesian Inference of Time-Deformation Models: Some Simulation Studies

Posted: 31 Mar 2013

See all articles by Tony S. Wirjanto

Tony S. Wirjanto

University of Waterloo - School of Accounting and Finance; University of Waterloo, Department of Statistics & Actuarial Science

Zhongxian Men

Independent

Date Written: March 28, 2013

Abstract

This paper focuses on simulation-based inference for the time-deformation models directed by a duration process. In order to describe the heavy tail property of the time series of financial asset returns, the innovation of the observation equation is assumed to have a Student-t distribution. Suitable Markov Chain Monte Carlo (MCMC) algorithms are proposed for the estimation of the parameters of these models. In the algorithms, the parameters of the models can be sampled either directly from known distributions or through an efficient slice sampler. The states are simulated one at a time by using a Metropolis-Hastings (MH) method, where the proposal distributions are sampled through a slice sampler. Simulation studies conducted in this paper suggest that our proposed models and accompanying MCMC algorithms work well in terms of parameter estimation and volatility forecast.

Keywords: Time- deformation model, Bayesian Inference, Slice sampler, Leverage effect.

JEL Classification: C1, C11, C15, G1

Suggested Citation

Wirjanto, Tony S. and Men, Zhongxian, Toward a Bayesian Inference of Time-Deformation Models: Some Simulation Studies (March 28, 2013). Available at SSRN: https://ssrn.com/abstract=2241194

Tony S. Wirjanto (Contact Author)

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)

HOME PAGE: http://https://uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

University of Waterloo, Department of Statistics & Actuarial Science ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)
519-746-1875 (Fax)

HOME PAGE: http://math.uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

Zhongxian Men

Independent ( email )

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