Stochastic Volatility (SV) models are widely used in financial applications. To decide whether standard parametric restrictions are justified for a given dataset, a statistical test is required. In this paper, we develop such a test based on the linear state space representation. We provide a...

The analysis of diffusion processes in financial models is crucially dependent on the form of the drift and diffusion coefficient functions. A methodology is proposed for estimating and testing coefficient functions for ergodic diffusions that are not directly observable. It is based on...

Let a process SI , ... ,ST obey the conditionally heteroskedastic equation St = Vt Et whcrc Et is a random noise and Vt is the volatility coefficient which in turn obeys an autoregression type equation log v t = w + a S t- l + nt with an additional noise nt. We consider the situation which the...