Efficient Bayesian Estimation of a Multivariate Stochastic Volatility Model with Cross Leverage and Heavy-Tailed Errors (Revised version of CARF-F-191(2009), CARF-F-198(2009) )

Abstract

An efficient Bayesian estimation using a Markov chain Monte Carlo method is proposed in the case of a multivariate stochastic volatility model as a natural extension of the univariate stochastic volatility model with leverage and heavy-tailed errors. Note that we further incorporate cross-leverage effects among stock returns. Our method is based on a multi-move sampler that samples a block of latent volatility vectors. The method is presented as a multivariate stochastic volatility model with cross leverage and heavytailed errors. Its high sampling efficiency is shown using numerical examples in comparison with a single-move sampler that samples one latent volatility vector at a time, given other latent vectors and parameters. To illustrate the method, empirical analyses are provided based on five-dimensional S&P500 sector indices returns.