Title: Copula stochastic volatility in oil returns: Approximate Bayesian computation with volatility prediction
Authors: Concepcion Ausin - Universidad Carlos III de Madrid (Spain) [presenting]
Audrone Virbickaite - Colegio Universitario Estudios Financieros (Spain)
Pedro Galeano - Universidad Carlos III de Madrid (Spain)
Abstract: Modeling the volatility of energy commodity returns has become a topic of increased interest in recent years, because of the important role it plays in today's economy. We propose a novel copula-based Stochastic Volatility model which allows for asymmetric volatility persistence. We employ ABC estimation technique that is appropriate for such highly-nonlinear model. We carry out two simulation studies and show that ABC is a comparable alternative to standard MCMC based methods. Finally, we present a real data application using WTI and Brent oil returns and show that the proposed asymmetric models outperform the symmetric ones in- and out-of-sample in terms of volatility prediction accuracy.