Method of Moments Estimation for Affine Stochastic Volatility Models

ArXiv ID: 2408.09185 “View on arXiv”

Authors: Unknown

Abstract

We develop moment estimators for the parameters of affine stochastic volatility models. We first address the challenge of calculating moments for the models by introducing a recursive equation for deriving closed-form expressions for moments of any order. Consequently, we propose our moment estimators. We then establish a central limit theorem for our estimators and derive the explicit formulas for the asymptotic covariance matrix. Finally, we provide numerical results to validate our method.

Keywords: Stochastic Volatility Models, Moment Estimators, Affine Models, Central Limit Theorem, Parameter Estimation, Derivatives / Fixed Income

Complexity vs Empirical Score

• Math Complexity: 9.0/10
• Empirical Rigor: 3.0/10
• Quadrant: Lab Rats
• Why: The paper relies heavily on advanced stochastic calculus, recursive moment derivations, and asymptotic theory (central limit theorem), indicating high mathematical complexity. While it includes numerical results for validation, the absence of real-world data backtests, implementation code, or statistical performance metrics (like out-of-sample errors) places it in the theoretical/methodological stage rather than a directly implementable trading strategy.

  flowchart TD
    A["Research Goal:<br>Develop moment estimators<br>for affine SV models"] --> B["Key Methodology:<br>Recursive equation for<br>closed-form moments"]
    B --> C["Computational Process:<br>Derive moment estimators<br>using moment conditions"]
    C --> D["Statistical Analysis:<br>Establish Central Limit Theorem<br>for estimators"]
    D --> E["Computational Process:<br>Derive asymptotic<br>covariance matrix"]
    E --> F["Validation:<br>Numerical results<br>on model data"]
    F --> G["Key Findings:<br>1. Closed-form moment expressions<br>2. Consistent moment estimators<br>3. CLT with explicit covariance"]
    
    style A fill:#e1f5e1
    style B fill:#fff3cd
    style C fill:#d1ecf1
    style D fill:#fff3cd
    style E fill:#d1ecf1
    style F fill:#e1f5e1
    style G fill:#d4edda