Running ADMB-executables
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In a DOS window
Under linux
Command line option: -ilmn 5.
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Results: Computation times
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Model description
Stochastic volatility models are used in mathematical finance to describe the evolution of asset returns,
which typically exhibit changing variances over time. As an illustration we use a dataset
previously analyzed by Harvey et al. (1994), and later by several other authors.
The data consist of a time series of daily pound/dollar exchange rates {zt} from the period 01/10/81 to 28/6/85.
The series of interest are the daily mean-corrected returns {yt}, given by the transformation
yt = log(zt)-log(zt-1)
- average[logzi-logzi-1].
The stochastic volatility model allows the variance of yt to vary smoothly with time.
This is achieved by assuming that yt ~ N(0,st),
where st = exp{-0.5(mx+xt)}.
Here, the smoothly varying component {xt} is assumed to follow an autoregression
xt = bxt-1 + et,
where et ~ N(0,s2).
Further details about the model can be found here: sdv.pdf.
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