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Bayesian estimation of an extended local scale stochastic volatility model

Deschamps, Philippe J.

In: Journal of Econometrics

A new version of the local scale model of Shephard (1994) is presented. Its features are identically distributed evolution equation disturbances, the incorporation of in-the-mean effects, and the incorporation of variance regressors. A Bayesian posterior simulator and an exact simulation smoother are presented. The model is applied to simulated data and to publicly available exchange rate and...