Markov processes and the distribution of volatility:a comparison of discrete and continuous specifications

Taylor, S J (1999) Markov processes and the distribution of volatility:a comparison of discrete and continuous specifications. Philosophical Transactions A: Mathematical, Physical and Engineering Sciences, 357 (1758). pp. 2059-2070. ISSN 1364-503X

Full text not available from this repository.

Abstract

Two mixtures of normal distributions, created by persistent changes in volatility, are compared as models for asset returns. A Markov chain with two states for volatility is contrasted with an autoregressive Gaussian process for the logarithm of volatility. The conditional variances of asset returns are shown to have a bimodal distribution for the former process when volatility is persistent that contrasts with a unimodal distribution for the latter process. A test procedure based upon this contrast shows that a log–normal distribution for sterling/dollar volatility is far more credible than only two volatility states.

Item Type:
Journal Article
Journal or Publication Title:
Philosophical Transactions A: Mathematical, Physical and Engineering Sciences
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/aacsb/disciplinebasedresearch
Subjects:
ID Code:
43426
Deposited By:
Deposited On:
11 Jul 2011 17:59
Refereed?:
Yes
Published?:
Published
Last Modified:
01 Jan 2020 07:22