Use this URL to cite or link to this record in EThOS: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.574902
Title: Bayesian stochastic differential equation modelling with application to finance
Author: Al-Saadony, Muhannad
Awarding Body: University of Plymouth
Current Institution: University of Plymouth
Date of Award: 2013
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Abstract:
In this thesis, we consider some popular stochastic differential equation models used in finance, such as the Vasicek Interest Rate model, the Heston model and a new fractional Heston model. We discuss how to perform inference about unknown quantities associated with these models in the Bayesian framework. We describe sequential importance sampling, the particle filter and the auxiliary particle filter. We apply these inference methods to the Vasicek Interest Rate model and the standard stochastic volatility model, both to sample from the posterior distribution of the underlying processes and to update the posterior distribution of the parameters sequentially, as data arrive over time. We discuss the sensitivity of our results to prior assumptions. We then consider the use of Markov chain Monte Carlo (MCMC) methodology to sample from the posterior distribution of the underlying volatility process and of the unknown model parameters in the Heston model. The particle filter and the auxiliary particle filter are also employed to perform sequential inference. Next we extend the Heston model to the fractional Heston model, by replacing the Brownian motions that drive the underlying stochastic differential equations by fractional Brownian motions, so allowing a richer dependence structure across time. Again, we use a variety of methods to perform inference. We apply our methodology to simulated and real financial data with success. We then discuss how to make forecasts using both the Heston and the fractional Heston model. We make comparisons between the models and show that using our new fractional Heston model can lead to improve forecasts for real financial data.
Supervisor: Stander, Julian Sponsor: Government of Iraq
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID: uk.bl.ethos.574902  DOI: Not available
Keywords: Fractional Stochastic Differential Equation, Bayesian inference, Markov chain Monte Carlo, Sequential Monte carlo Methods, Particle Filter, Auxiliary Particle Filter.
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