Ordinal stochastic volatility and stochastic volatility models for price changes: An empirical comparison
BibTeX
@MISC{Czado_ordinalstochastic,
author = {Claudia Czado and Thi-Ngoc-Giau Nguyen and Gernot Müller},
title = {Ordinal stochastic volatility and stochastic volatility models for price changes: An empirical comparison},
year = {}
}
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Abstract
Ordinal stochastic volatility (OSV) models were recently developed and fitted by Müller and Czado (2008) to account for the discreteness of financial price changes, while allowing for stochastic volatility (SV). The model allows for exogenous factors both on the mean and volatility level. A Bayesian approach using Markov Chain Monte Carlo (MCMC) is followed to facilitate estimation in these parameter driven models. In this paper the applicability of the OSV model to financial stocks with different levels of trading activity is investigated and the influence of time between trades, volume, day time and the number of quotes between trades is determined. In a second focus we compare the performance of OSV models to SV models by developing model selection criteria. This analysis shows that the discreteness of price changes should not be ignored.
