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Testing Constancy of the Error Covariance Matrix in Vector Models against Parametric Alternatives using a Spectral Decomposition

Yang, Yukai - School of Economics and Management, University of Aarhus - 2014

I consider multivariate (vector) time series models in which the error covariance matrix may be time-varying. I derive a test of constancy of the error covariance matrix against the alternative that the covariance matrix changes over time. I design a new family of Lagrange-multiplier tests...

Persistent link: https://www.econbiz.de/10010851225

Long memory modelling of inflation with stochastic variance and structural breaks

Bos, Charles S.; Koopman, Siem Jan; Ooms, Marius - School of Economics and Management, University of Aarhus - 2007

We investigate changes in the time series characteristics of postwar U.S. inflation. In a model-based analysis the conditional mean of inflation is specified by a long memory autoregressive fractionally integrated moving average process and the conditional variance is modelled by a stochastic...

Persistent link: https://www.econbiz.de/10005114135

A Markov Chain Estimator of Multivariate Volatility from High Frequency Data

Hansen, Peter Reinhard; Horel, Guillaume; Lunde, Asger; … - School of Economics and Management, University of Aarhus - 2015

We introduce a multivariate estimator of financial volatility that is based on the theory of Markov chains. The Markov chain framework takes advantage of the discreteness of high-frequency returns. We study the finite sample properties of the estimation in a simulation study and apply it to...

Persistent link: https://www.econbiz.de/10011268024

A Martingale Decomposition of Discrete Markov Chains

Hansen, Peter Reinhard - School of Economics and Management, University of Aarhus - 2015

We consider a multivariate time series whose increments are given from a homogeneous Markov chain. We show that the martingale component of this process can be extracted by a filtering method and establish the corresponding martingale decomposition in closed-form. This representation is useful...

Persistent link: https://www.econbiz.de/10011268025

Quadratic Variation by Markov Chains

Hansen, Peter Reinhard; Horel, Guillaume - School of Economics and Management, University of Aarhus - 2009

We introduce a novel estimator of the quadratic variation that is based on the theory of Markov chains. The estimator is motivated by some general results concerning filtering contaminated semimartingales. Specifically, we show that filtering can in principle remove the effects of market...

Persistent link: https://www.econbiz.de/10004990847

Simulation of multivariate diffusion bridges

Bladt, Mogens; Finch, Samuel; Sørensen, Michael - School of Economics and Management, University of Aarhus - 2014

We propose simple methods for multivariate diffusion bridge simulation, which plays a fundamental role in simulation-based likelihood and Bayesian inference for stochastic differential equations. By a novel application of classical coupling methods, the new approach generalizes a previously...

Persistent link: https://www.econbiz.de/10010851217

Bayesian Option Pricing Using Mixed Normal Heteroskedasticity Models

Rombouts, Jeroen V.K.; Stentoft, Lars - School of Economics and Management, University of Aarhus - 2009

While stochastic volatility models improve on the option pricing error when compared to the Black-Scholes-Merton model, mispricings remain. This paper uses mixed normal heteroskedasticity models to price options. Our model allows for significant negative skewness and time varying higher order...

Persistent link: https://www.econbiz.de/10005440079

Simple simulation of diffusion bridges with application to likelihood inference for diffusions

Bladt, Mogens; Sørensen, Michael - School of Economics and Management, University of Aarhus - 2010

With a view to likelihood inference for discretely observed diffusion type models, we propose a simple method of simulating approximations to diffusion bridges. The method is applicable to all one-dimensional diffusion processes and has the advantage that simple simulation methods like the Euler...

Persistent link: https://www.econbiz.de/10008462029

Marginal Likelihood for Markov-switching and Change-point Garch Models

Luc, Luc; Dufays, Arnaud; Rombouts, Jeroen V.K. - School of Economics and Management, University of Aarhus - 2011

GARCH volatility models with fixed parameters are too restrictive for long time series due to breaks in the volatility process. Flexible alternatives are Markov-switching GARCH and change-point GARCH models. They require estimation by MCMC methods due to the path dependence problem. An unsolved...

Persistent link: https://www.econbiz.de/10009371456

Conservatism in Corporate Valuation

Bach, Christian - School of Economics and Management, University of Aarhus - 2011

of a large sample of stocks listed on NYSE, AMEX and NASDAQ. The model is different from the standard CAPM model in the … consumption rather than historical returns. I compare the pricing performance of the model with the standard CAPM based valuation … based on the results of the respective models. The CCAPM model performs substantially better than the CAPM based model when …

Persistent link: https://www.econbiz.de/10009293656