A1151
Title: Identifying the number of latent factors of stochastic volatility models
Authors: Erindi Allaj - University of Parma (Italy) [presenting]
Abstract: A procedure is provided to identify the number of latent factors of stochastic volatility models. The methodology relies on the non-parametric Fourier estimation method introduced by a past study and applies to high-frequency data. Based on the Fourier analysis, the latent volatility process is first estimated, and then the volatilities and covariances of the processes are gradually identified, such as volatility of volatility and leverage. The analysis of the eigenvalues spectrum of the Gram matrix can reveal information about the actual number of factors driving the process at hand. The analysis is corroborated by numerical simulations on single and multi-factor models. Finally, the methodology is applied to intraday prices from the S\&P 500 index futures.
