A0577
Title: Stylized facts for regime-switching models
Authors: Elisabeth Leoff - University of Kaiserslautern (Germany) [presenting]
Joern Sass - RPTU Kaiserslautern-Landau (Germany)
Abstract: Regime-switching models, in particular Hidden Markov Models, are widely-used in financial applications, due to their tractability and good econometric properties. We consider regime-switching models in discrete and continuous time with both constant and switching volatility. We examine which stylized facts they can reproduce and what this implies for the choice of model parameters. Our analysis is done both theoretically and with simulations, as for models with more than $2$ states the transition probabilities cannot be calculated explicitly. Special attention will be paid to the structure of the linear and absolute autocorrelations, in particular for the model with $2$ states.
