Telling from Discrete Data Whether the Underlying Continuous-Time Model Is a Diffusion
AbstractCan discretely sampled financial data help us decide which continuous-time models are sensible? Diffusion processes are characterized by the continuity of their sample paths. This cannot be verified from the discrete sample path: Even if the underlying path were continuous, data sampled at discrete times will always appear as a succession of jumps. Instead, I rely on the transition density to determine whether the discontinuities observed are the result of the discreteness of sampling, or rather evidence of genuine jump dynamics for the underlying continuous-time process. I then focus on the implications of this approach for option pricing models. Copyright The American Finance Association 2002.
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Bibliographic InfoArticle provided by American Finance Association in its journal The Journal of Finance.
Volume (Year): 57 (2002)
Issue (Month): 5 (October)
Other versions of this item:
- Yacine Ait-Sahalia, 2001. "Telling from Discrete Data Whether the Underlying Continuous-Time Model is a Diffusion," NBER Working Papers 8504, National Bureau of Economic Research, Inc.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
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