Wai Keung Li (Statistics and Actuarial Science, HKU)

Title: On a Threshold Stochastic Volatility Model

Abstract: This talk introduces a new model to capture simultaneously the 
mean and variance asymmetries in time series. Theshold nonlinearity is 
incoporated into the mean and variance specifications of a stochastic 
volatility model. Bayesian methods are adopted for parameter estimation. 
Forecasts of volatility and Value at Risk can also be obtained by sampling from 
suitable predictive distributions. Simulations demonstrate that apparent
variance asymmetry decumented in the literature can be due to the 
neglecting of mean asymmetry. Strong evidence of the mean and variance 
asymmetries was detected in U.S. and Hong Kong data. Asymmetry in the
variance persistence was also discovered in the Hong Kong stock market.