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A locally both leptokurtic and fat-tailed distribution with application in a Bayesian stochastic volatility model
stochastic volatility
Markov chain Monte Carlo
Bayesian inference
leptokurticity
heavy tails
scale mixture of normals
modelling financial data
In the paper, we begin with introducing a novel scale mixture of normal distribution such that its leptokurticity and fat-tailedness are only local, with this “locality” being separately controlled by two censoring parameters. This new, locally leptokurtic and fat-tailed (LLFT) distribution makes a viable alternative for other, globally leptokurtic, fat-tailed and symmetric distributions, typically entertained in financial volatility modelling. Then, we incorporate the LLFT distribution into a basic stochastic volatility (SV) model to yield a flexible alternative for common heavy-tailed SV models. For the resulting LLFT-SV model, we develop a Bayesian statistical framework and effective MCMC methods to enable posterior sampling of the parameters and latent variables. Empirical results indicate the validity of the LLFT-SV specification for modelling both “non-standard” financial time series with repeating zero returns, as well as more “typical” data on the S&P 500 and DAX indices. For the former, the LLFT-SV model is also shown to markedly outperform a common, globally heavy-tailed, t-SV alternative in terms of density forecasting. Applications of the proposed distribution in more advanced SV models seem to be easily attainable.
cris.lastimport.wos | 2024-04-09T21:00:08Z | |
dc.abstract.en | In the paper, we begin with introducing a novel scale mixture of normal distribution such that its leptokurticity and fat-tailedness are only local, with this “locality” being separately controlled by two censoring parameters. This new, locally leptokurtic and fat-tailed (LLFT) distribution makes a viable alternative for other, globally leptokurtic, fat-tailed and symmetric distributions, typically entertained in financial volatility modelling. Then, we incorporate the LLFT distribution into a basic stochastic volatility (SV) model to yield a flexible alternative for common heavy-tailed SV models. For the resulting LLFT-SV model, we develop a Bayesian statistical framework and effective MCMC methods to enable posterior sampling of the parameters and latent variables. Empirical results indicate the validity of the LLFT-SV specification for modelling both “non-standard” financial time series with repeating zero returns, as well as more “typical” data on the S&P 500 and DAX indices. For the former, the LLFT-SV model is also shown to markedly outperform a common, globally heavy-tailed, t-SV alternative in terms of density forecasting. Applications of the proposed distribution in more advanced SV models seem to be easily attainable. | pl |
dc.affiliation | Wydział Matematyki i Informatyki : Instytut Matematyki | pl |
dc.contributor.author | Lenart, Łukasz | pl |
dc.contributor.author | Pajor, Anna - 229555 | pl |
dc.contributor.author | Kwiatkowski, Łukasz | pl |
dc.date.accessioned | 2021-09-13T11:56:57Z | |
dc.date.available | 2021-09-13T11:56:57Z | |
dc.date.issued | 2021 | pl |
dc.date.openaccess | 0 | |
dc.description.accesstime | w momencie opublikowania | |
dc.description.number | 6 | pl |
dc.description.version | ostateczna wersja wydawcy | |
dc.description.volume | 23 | pl |
dc.identifier.articleid | 689 | pl |
dc.identifier.doi | 10.3390/e23060689 | pl |
dc.identifier.eissn | 1099-4300 | pl |
dc.identifier.uri | https://ruj.uj.edu.pl/xmlui/handle/item/278418 | |
dc.language | eng | pl |
dc.language.container | eng | pl |
dc.rights | Udzielam licencji. Uznanie autorstwa 4.0 Międzynarodowa | * |
dc.rights.licence | CC-BY | |
dc.rights.uri | http://creativecommons.org/licenses/by/4.0/legalcode.pl | * |
dc.share.type | inne | |
dc.subject.en | stochastic volatility | pl |
dc.subject.en | Markov chain Monte Carlo | pl |
dc.subject.en | Bayesian inference | pl |
dc.subject.en | leptokurticity | pl |
dc.subject.en | heavy tails | pl |
dc.subject.en | scale mixture of normals | pl |
dc.subject.en | modelling financial data | pl |
dc.subtype | Article | pl |
dc.title | A locally both leptokurtic and fat-tailed distribution with application in a Bayesian stochastic volatility model | pl |
dc.title.journal | Entropy | pl |
dc.type | JournalArticle | pl |
dspace.entity.type | Publication |