Statistical Methods in Finance 2018

Dec 17 - 20, 2018


Applications of Birnbaum-Saunders Distribution in Modelling Stochastic Volatility

by N Balakrishna

In this paper we propose a method of constructing a Markov sequence with one-dimensional Birnbaum-Saunders (BS) stationary distribution using a first order Gaussian autoregressive sequence. A parameter-driven stochastic volatility model is constructed using this BS Markov sequence to describe the evolution of financial returns. The parameters of the resulting model are estimated using a method of efficient important sampling. A simulation study is conducted to illustrate the method of estimation and data sets are analysed to highlight the applications of the model.