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| Author: | Ait-Schalia, Y. Kimmel, R. |
| Title: | Maximum likelihood estimation of stochastic volatility models |
| Journal: | Journal of Financial Economics
2007 : FEB, VOL. 83:2, p. 413-452 |
| Index terms: | volatility models Monte Carlo technique |
| Language: | eng |
| Abstract: | This paper develops and implements a method for maximum likelihood estimation in closed-form of stochastic volatility models (here as: s-v-mds - for 'volatility' as: vol.) Using Monte Carlo simulations, a full likelihood procedure is compared, where an option price is inverted into the unobservable vol. state. The method is applied to market prices of index options for several s-v-mds. The characteristics of the estimated models are compared. The evidence for a general CEV model, which nests both the affine Heston model and a GARCH model, suggests that the elasticity of variance of vol. is btw. that assumed by the two nested models. |
SCIMA