McMC Estimation of Multiscale Stochastic Volatility Models

Abstract

In this paper we propose to use Monte Carlo Markov Chain methods to estimate the parameters of Stochastic Volatility Models with several factors varying at differ- ent time scales. The originality of our approach, in contrast with classical one-factor models is the identification of well-separated time scales and the number of these. This is tested with simulated data as well as foreign exchange data.