Estimating stochastic volatility models with student-t distributed errors

This dissertation aims to extend on the idea of Bollerslev (1987), estimating ARCH models with Student-t distributed errors, to estimating Stochastic Volatility (SV) models with Student-t distributed errors. It is unclear whether Gaussian distributed errors sufficiently account for the observed leptokurtosis in financial time series and hence the extension to examine Student-t distributed errors for these models. The quasi-maximum likelihood estimation approach introduced by Harvey (1989) and the conventional Kalman filter technique are described so that the SV model with Gaussian distributed errors and SV model with Student-t distributed errors can be estimated. Estimation of GARCH (1,1) models is also described using the method maximum likelihood. The empirical study estimated four models using data on four different share return series and one index return, namely: Anglo American, BHP, FirstRand, Standard Bank Group and JSE Top 40 index. The GARCH and SV model with Student-t distributed errors both perform best on the series examined in this dissertation. The metric used to determine the best performing model was the Akaike information criterion (AIC).

Grantor

Department of Statistical Sciences

Year dc:date.issued

2020

Author dc:creator

• Rama, Vishal

Advisors dc:contributor.advisor

• Kulikova, Maria
• Mavuso, Melusi

• Decision Sciences and Analytics

Handle dc:identifier.uri

http://hdl.handle.net/11427/32390

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/32390