Author(s)

Lewis N. K. Mambo^1,2, Rostin M. M. Mabela³, Isaac K. Kanyama^1,4, Eugène M. Mbuyi³

¹Department of Economics, University of Kinshasa, Kinshasa, Congo.
²Direction of Research and Statistics, Central Bank of Congo, Kinshasa, Congo.
³Department of Mathematics and Computer Science, University of Kinshasa, Kinshasa, Congo.
⁴Department of Economics and Econometrics, University of Johannesburg, Johannesburg, South Africa.

The purpose of this paper is to present the theorical connection between the Itô stochastic calculus and the Financial Econometrics. This paper has two contributions. First, we give the backgrounds on how the stochastic calculus is used to model the real data with the uncertainties. Finally, by using Consumer Price Index (CPI) from the Central Bank of Congo and combining the Itô stochastic calculus and the AR (1)-GARCH (1, 1) model, we estimate the stochastic volatility of inflation rate measuring efficency of monetary policy. Thus the stochastic integrals are the powerful tools of mathematical modelling and econometric analysis.

Stochastic Continuous-Time Models, Stochastic Volatility, AR (1)-GARCH (1, 1) Models, Inflation Rate

Mambo, L. , Mabela, R. , Kanyama, I. and Mbuyi, E. (2019) On the Contribution of the Stochastic Integrals to Econometrics. Applied Mathematics, 10, 1048-1070. doi: 10.4236/am.2019.1012073.