2019/03/05 by Taylor R. Brown, Brown, Taylor R.
Economics, Econometrics and Finance · #Applications (stat.AP) #Complex Systems and Time Series Analysis #FOS: Computer and information sciences #Financial Risk and Volatility Modeling #Market Dynamics and Volatility
paper · pdf · doi:10.48550/arxiv.1903.01841
openalex publication_date 2019/03/05 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
The use of factor stochastic volatility models requires choosing the number of latent factors used to describe the dynamics of the financial returns process; however, empirical evidence suggests that the number and makeup of pertinent factors is time-varying and economically situational. We present a novel factor stochastic volatility model that allows for random subsets of assets to have their members experience non-market-wide panics. These participating assets will experience an increase in their variances and within-group covariances. We also give an estimation algorithm for this model that takes advantage of recent results on Particle Markov chain Monte Carlo techniques.