Acta Oeconomica Pragensia 2014, 22(1):3-26 | DOI: 10.18267/j.aop.423

Simulating Bivariate Stationary Processes with Scale-Specific Characteristics

Milan Bašta
University of Economics in Prague, Faculty of Informatics and Statistics (milan.basta@vse.cz).

By modifying and generalizing the wavelet-based approach of approximately simulating univariate long-memory processes that is available in the literature, we propose a methodology for simulating a bivariate stationary process, whose components exhibit different relationships at different scales. We derive the formulas for the autocovariance and cross-covariance sequences of the simulated bivariate process. We provide a setting for the parameters of the simulation which might generate a bivariate time series resembling that of stock log returns. Using this setting, we study the properties of our methodology via Monte Carlo simulation.

Keywords: time series, bivariate, wavelets, finance
JEL classification: C32, C49, C53, C58, G10

Published: February 1, 2014  Show citation

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Bašta, M. (2014). Simulating Bivariate Stationary Processes with Scale-Specific Characteristics. Acta Oeconomica Pragensia, 22(1), 3-26. doi: 10.18267/j.aop.423
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