This paper proposes a model that simultaneously captures long memory and structural breaks. We model structural breaks through irreversible Markov switching or so-called change-point dynamics. The parameters subject to structural breaks and the unobserved states which determine the position of...

The no arbitrage relation between futures and spot prices implies an analogous relation between futures and spot volatilities as measured by daily range. Long memory features of the range-based volatility estimators of the two series are analyzed, and their joint dynamics are modeled via a...

In this paper we extend the CKLS one factor short rate model to include extreme value nonlinear mean reversion. Similarly to a recent stock market study, we include the smallest short rate during the previous year in the mean equation. We investigate the US and five other major markets (Canada,...

We investigate the intertemporal risk-return trade-off of foreign ex- change (FX) rates for ten currencies quoted against the USD. For each currency, we use three risk measures simultaneously that pertain to that currency; its realized volatility, its realized skewness, and its value-at-risk. We...

While stochastic volatility models improve on the option pricing error when compared to the Black-Scholes-Merton model, mispricings remain. This paper uses mixed normal heteroskedasticity models to price options. Our model allows for significant negative skewness and time varying higher order...

This paper presents the Matlab package DeCo (Density Combination) which is based on the paper by Billio et al. (2013) where a constructive Bayesian approach is presented for combining predictive densities originating from different models or other sources of information. The combination weights...

The restrictions implied by the theory of time-consistent monetary policy are imposed on empirical data. Model estimation is conducted using Bayesian Markov chain Monte Carlo techniques. We are able to identify two major regimes regarding the policy of the Federal Reserve from 1970 to 2008....

A modification of the self-perturbed Kalman filter of Park and Jun (1992) is proposed for the on-line estimation of models subject to parameter instability. The perturbationterm in the updating equation of the state covariance matrix is weighted by the measurement error variance, thus avoiding...

We propose a flexible model to describe nonlinearities and long-range dependence in time series dynamics. Our model is an extension of the heterogeneous autoregressive model. Structural breaks occur through mixture distributions in state innovations of linear Gaussian state space models. Monte...

The persistent nature of equity volatility is investigated by means of a multi-factor stochastic volatility model with time varying parameters. The parameters are estimated by means of a sequential indirect inference procedure which adopts as auxiliary model a time-varying generalization of the...