Estimation of limiting conditional distributions for the heavy tailed long memory stochastic volatility process

DOI10.1007/S10687-012-0159-9MaRDI QIDQ2375847zbMATH OpenOpenAlexFDO

Authors Rafał Kulik, Philippe Soulier

Publication date 25 June 2013

Published in Extremes (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1108.3136

zbMATH Keywords

heavy tailslong memoryregular variationStochastic volatility

Mathematics Subject Classification ID

Central limit and other weak theorems (60F05) Extreme value theory; extremal stochastic processes (60G70)

Abstract: We consider Stochastic Volatility processes with heavy tails and possible long memory in volatility. We study the limiting conditional distribution of future events given that some present or past event was extreme (i.e. above a level which tends to infinity). Even though extremes of stochastic volatility processes are asymptotically independent (in the sense of extreme value theory), these limiting conditional distributions differ from the i.i.d. case. We introduce estimators of these limiting conditional distributions and study their asymptotic properties. If volatility has long memory, then the rate of convergence and the limiting distribution of the centered estimators can depend on the long memory parameter (Hurst index).

Review text

Consider a stochastic volatility process defined as \[ Y_{i}=\sigma\left( X_{i}\right) Z_{i},\mathstrut i\in\mathbb{Z}\text{,} \] where \(\sigma\) is some (possibly unknown) positive function, \(\left\{ Z_{j},j\in\mathbb{Z}\right\} \) is an i.i.d. sequence and \(\left\{ X_{j} ,j\in\mathbb{Z}\right\} \) is a stationary Gaussian process with mean zero, unit variance, and independent from the process \(\left\{ X_{j}\right\} \). The authors study certain extremal properties\ of the finite dimensional joint distributions of the process \(\left\{ Y_{j}\right\} \) when \(Z_{1}\) is heavy tailed and the Gaussian process \(\left\{ X_{j}\right\} \) possibly has long memory. For fixed positive integers \(h<m\) and \(h^{\prime}\geqq0\), Borel sets \(A\subset\mathbb{R}^{h}\) and \(B\subset\mathbb{R}^{h^{\prime}+1}\), they are interested in the limits \[ \rho\left( A,B,m\right) =\lim\limits_{t\rightarrow\infty}\mathbb{P}\left( \left( Y_{m},\dots,Y_{m+h^{\prime}}\right) \in B\mid\left( Y_{1} ,\dots,Y_{h}\right) \in tA\right) \text{.} \] The general aim of this paper is to investigate the existence of the limiting conditional distributions \(\rho\left( A,B,m\right)\) and their statistical estimation. The asymptotic properties of estimators are studied.

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Cited in

(9)

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• The tail empirical process for long memory stochastic volatility models with leverage
• Heavy tailed time series with extremal independence
• A stochastic volatility model with flexible extremal dependence structure
• Extremes of Stochastic Volatility Models
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