Financial Time Series Analysis of SV Model by Hybrid Monte Carlo

Details Financial Time Series Analysis of SV Model by Hybrid Monte Carlo Financial Time Series Analysis of SV Model by Hybrid Monte Carlo

2008-07-28

arxiv.org/abs/0807.4394v1

Lecture Notes in Computer Science Volume 5226 (2008) 929-936

Economy

Quantitative Finance

Statistical Finance

8 pages, 3 figures, to be published in LNCS

Scientific paper

10.1007/978-3-540-87442-3_114

We apply the hybrid Monte Carlo (HMC) algorithm to the financial time sires analysis of the stochastic volatility (SV) model for the first time. The HMC algorithm is used for the Markov chain Monte Carlo (MCMC) update of volatility variables of the SV model in the Bayesian inference. We compute parameters of the SV model from the artificial financial data and compare the results from the HMC algorithm with those from the Metropolis algorithm. We find that the HMC decorrelates the volatility variables faster than the Metropolis algorithm. We also make an empirical analysis based on the Yen/Dollar exchange rates.

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