This paper proposes a parsimonious threshold stochastic volatility (SV) model for financial asset returns. Instead of … imposing a threshold value on the dynamics of the latent volatility process of the SV model, we assume that the innovation of … time-varying volatility of returns, but also can accommodate the asymmetric shape of conditional distribution of the …

discrete processes can be identified as different volatility regimes. Secondly, the parameters can be easily interpreted as … different hedging components. Our formulation also provides an avenue to analyze the contribution of the volatility dynamics and …