2022/08/17 by Alejandra López-Pérez, López-Pérez, Alejandra, Manuel Febrero–Bande +3
Economics, Econometrics and Finance · #FOS: Computer and information sciences #Financial Risk and Volatility Modeling #Methodology (stat.ME) #Monetary Policy and Economic Impact #Stochastic processes and financial applications
paper · pdf · doi:10.48550/arxiv.2208.08415
openalex publication_date 2022/08/17 · openalex created_date 2022/10/03 · openalex updated_date 2026/07/28
Given the importance of continuous-time stochastic volatility models to describe the dynamics of interest rates, we propose a goodness-of-fit test for the parametric form of the drift and diffusion functions, based on a marked empirical process of the residuals. The test statistics are constructed using a continuous functional (Kolmogorov-Smirnov and Cramér-von Mises) over the empirical processes. In order to evaluate the proposed tests, we implement a simulation study, where a bootstrap method is considered for the calibration of the tests. As the estimation of diffusion models with stochastic volatility based on discretely sampled data has proven difficult, we address this issue by means of a Monte Carlo study for different estimation procedures. Finally, an application of the procedures to real data is provided.