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Realized Laplace Transforms for Estimation of Jump Diffusive Volatility Models

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Author Info

  • Viktor Todorov
  • Iaryna Grynkiv
  • George Tauchen

Abstract

We develop a new efficient and analytically tractable method for estimation of parametric volatility models that is robust to price-level jumps and generally has good finite sample properties. The method entails first integrating intra-day data into the Realized Laplace Transform of volatility, which is a model-free and jump-robust estimate of daily integrated empirical Laplace transform of the unobservable volatility. The estimation then is done by matching moments of the integrated joint Laplace transform with those implied by various parametric volatility models. In the empirical application, the best fitting volatility model is a non-diffusive two-factor model where low activity jumps drive its persistent component and more active jumps drive the transient one.

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Bibliographic Info

Paper provided by Duke University, Department of Economics in its series Working Papers with number 10-75.

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Length: 38
Date of creation: 2010
Date of revision:
Handle: RePEc:duk:dukeec:10-75

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Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
Phone: (919) 660-1800
Fax: (919) 684-8974
Web page: http://econ.duke.edu/

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Keywords: Jumps; High-Frequency Data; Laplace Transform; Stochastic Volatility;

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References

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  1. Todorov, Viktor, 2009. "Estimation of continuous-time stochastic volatility models with jumps using high-frequency data," Journal of Econometrics, Elsevier, vol. 148(2), pages 131-148, February.
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  22. Bollerslev, Tim & Zhou, Hao, 2002. "Estimating stochastic volatility diffusion using conditional moments of integrated volatility," Journal of Econometrics, Elsevier, vol. 109(1), pages 33-65, July.
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  24. Darrell Duffie & Jun Pan & Kenneth Singleton, 2000. "Transform Analysis and Asset Pricing for Affine Jump-Diffusions," Econometrica, Econometric Society, vol. 68(6), pages 1343-1376, November.
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  28. Todorov, Viktor & Tauchen, George, 2010. "Activity signature functions for high-frequency data analysis," Journal of Econometrics, Elsevier, vol. 154(2), pages 125-138, February.
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Cited by:
  1. Viktor Todorov & George Tauchen & Iaryna Grynkiv, 2011. "Volatility Activity: Specification and Estimation," Working Papers 11-23, Duke University, Department of Economics.

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