Quotation Hahn, Markus, Frühwirth-Schnatter, Sylvia, Sass, Jörn. 2010. Markov chain Monte Carlo methods for parameter estimation in multidimensional continuous time Markov switching models. Journal of Financial Econometrics 8 88-121.


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Abstract

We present Markov chain Monte Carlo methods for estimating parameters of multidimensional, continuous time Markov switching models. The observation process can be seen as a diffusion, where drift and volatility coefficients are modeled as continuous time, finite state Markov chains with a common state process. The states for drift and volatility and the rate matrix of the underlying Markov chain have to be estimated. Applications to simulated data indicate that the proposed algorithm can outperform the expectation maximization algorithm for difficult cases, e.g. for high rates. Application to financial market data shows that the Markov chain Monte Carlo method indeed provides sufficiently stable estimates.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Journal of Financial Econometrics
Citation Index SSCI
WU-Journal-Rating new FIN-A, STRAT-B, VW-C, WH-B
Language English
Title Markov chain Monte Carlo methods for parameter estimation in multidimensional continuous time Markov switching models
Volume 8
Year 2010
Page from 88
Page to 121
URL http://www.ricam.oeaw.ac.at/publications/reports/07/rep07-09.pdf

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People
Frühwirth-Schnatter, Sylvia (Details)
External
Hahn, Markus
Sass, Jörn
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