A locally both leptokurtic and fat-tailed distribution with application in a Bayesian stochastic volatility model

2021
journal article
article
2
cris.lastimport.wos2024-04-09T21:00:08Z
dc.abstract.enIn 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.affiliationWydział Matematyki i Informatyki : Instytut Matematykipl
dc.contributor.authorLenart, Łukaszpl
dc.contributor.authorPajor, Anna - 229555 pl
dc.contributor.authorKwiatkowski, Łukaszpl
dc.date.accessioned2021-09-13T11:56:57Z
dc.date.available2021-09-13T11:56:57Z
dc.date.issued2021pl
dc.date.openaccess0
dc.description.accesstimew momencie opublikowania
dc.description.number6pl
dc.description.versionostateczna wersja wydawcy
dc.description.volume23pl
dc.identifier.articleid689pl
dc.identifier.doi10.3390/e23060689pl
dc.identifier.eissn1099-4300pl
dc.identifier.urihttps://ruj.uj.edu.pl/xmlui/handle/item/278418
dc.languageengpl
dc.language.containerengpl
dc.rightsUdzielam licencji. Uznanie autorstwa 4.0 Międzynarodowa*
dc.rights.licenceCC-BY
dc.rights.urihttp://creativecommons.org/licenses/by/4.0/legalcode.pl*
dc.share.typeinne
dc.subject.enstochastic volatilitypl
dc.subject.enMarkov chain Monte Carlopl
dc.subject.enBayesian inferencepl
dc.subject.enleptokurticitypl
dc.subject.enheavy tailspl
dc.subject.enscale mixture of normalspl
dc.subject.enmodelling financial datapl
dc.subtypeArticlepl
dc.titleA locally both leptokurtic and fat-tailed distribution with application in a Bayesian stochastic volatility modelpl
dc.title.journalEntropypl
dc.typeJournalArticlepl
dspace.entity.typePublication
cris.lastimport.wos
2024-04-09T21:00:08Z
dc.abstract.enpl
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.
dc.affiliationpl
Wydział Matematyki i Informatyki : Instytut Matematyki
dc.contributor.authorpl
Lenart, Łukasz
dc.contributor.authorpl
Pajor, Anna - 229555
dc.contributor.authorpl
Kwiatkowski, Łukasz
dc.date.accessioned
2021-09-13T11:56:57Z
dc.date.available
2021-09-13T11:56:57Z
dc.date.issuedpl
2021
dc.date.openaccess
0
dc.description.accesstime
w momencie opublikowania
dc.description.numberpl
6
dc.description.version
ostateczna wersja wydawcy
dc.description.volumepl
23
dc.identifier.articleidpl
689
dc.identifier.doipl
10.3390/e23060689
dc.identifier.eissnpl
1099-4300
dc.identifier.uri
https://ruj.uj.edu.pl/xmlui/handle/item/278418
dc.languagepl
eng
dc.language.containerpl
eng
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.enpl
stochastic volatility
dc.subject.enpl
Markov chain Monte Carlo
dc.subject.enpl
Bayesian inference
dc.subject.enpl
leptokurticity
dc.subject.enpl
heavy tails
dc.subject.enpl
scale mixture of normals
dc.subject.enpl
modelling financial data
dc.subtypepl
Article
dc.titlepl
A locally both leptokurtic and fat-tailed distribution with application in a Bayesian stochastic volatility model
dc.title.journalpl
Entropy
dc.typepl
JournalArticle
dspace.entity.type
Publication
Affiliations

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