2012/05/31 by Danilo Delpini, Delpini, Danilo, Giacomo Bormetti +1
Economics, Econometrics and Finance · #FOS: Economics and business #Statistical Finance (q-fin.ST) #q-fin.ST
paper · pdf · doi:10.48550/arxiv.1206.0026
Second figure modified, some typos corrected
arxiv created 2013/04/03 · arxiv updated 2013/04/04
Agents' heterogeneity is recognized as a driver mechanism for the persistence of financial volatility. We focus on the multiplicity of investment strategies' horizons, we embed this concept in a continuous time stochastic volatility framework and prove that a parsimonious, two-scale version effectively captures the long memory as measured from the real data. Since estimating parameters in a stochastic volatility model is challenging, we introduce a robust methodology based on the Generalized Method of Moments supported by a heuristic selection of the orthogonal conditions. In addition to the volatility clustering, the estimated model also captures other relevant stylized facts, emerging as a minimal but realistic and complete framework for modelling financial time series.