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Bayesian Analysis of Stochastic Volatility Model with Leverage Effect and Its Application

Meng Li

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Abstract

Stochastic volatility (SV) models are widely used as the tools of financial volatility analyzing in the field of econometrics. A Bayesian analysis of the stochastic volatility model with leverage effect is discussed in this paper. The parameters of the model are estimated via software package BUGS (Bayesian inference using Gibbs Sampling). The results based on stock returns of Shanghai and Shenzhen show that the remarkable leverage effects exist in these two stock markets.

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What this paper is about

Stochastic volatility (SV) models are widely used as the tools of financial volatility analyzing in the field of econometrics. A Bayesian analysis of the stochastic volatility model with leverage effect is discussed in this paper. The parameters of the model are estimated via software package BUGS (Bayesian inference using Gibbs Sampling). The results based on stock returns of Shanghai and Shenzhen show that the remarkable leverage effects exist in these two stock markets.

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Available abstract

Stochastic volatility (SV) models are widely used as the tools of financial volatility analyzing in the field of econometrics. A Bayesian analysis of the stochastic volatility model with leverage effect is discussed in this paper. The parameters of the model are estimated via software package BUGS (Bayesian inference using Gibbs Sampling). The results based on stock returns of Shanghai and Shenzhen show that the remarkable leverage effects exist in these two stock markets.

Key concepts: Stochastic volatility, Econometrics, Leverage effect, Leverage (statistics), Gibbs sampling, Volatility (finance), Bayesian probability, Bayesian inference

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