On the use of non-linear transformations in Stochastic Volatility models

@article{Tsiotas2009OnTU,
  title={On the use of non-linear transformations in Stochastic Volatility models},
  author={Georgios Tsiotas},
  journal={Statistical Methods and Applications},
  year={2009},
  volume={18},
  pages={555-583}
}
Stochastic Volatility models have been considered as a real alternative to conditional variance models, assuming that volatility follows a process different from the observed one. However, issues like the unobservable nature of volatility and the creation of “rich” dynamics give rise to the use of non-linear transformations for the volatility process. The Box–Cox transformation and its Yeo–Johnson variation, by nesting both the linear and the non-linear case, can be considered as natural… CONTINUE READING

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