Estimation of Jump-Diffusion Process vis Empirical Characteristic Function
AbstractThis article proposes an estimation procedure for the affine stochastic volatility models with jumps both in the asset price and variance processes. The estimation procedure is based on the joint (here bi-variate) unconditional characteristic function for the stochastic process for which we derive a closed form expression. The estimation of the general model and of various restrictions, on S&P 500 data, is performed using the continuous empirical characteristic function method. The estimation suggests that besides a stochastic volatility, jumps both in the mean and the volatility equation are relevant.
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Bibliographic InfoPaper provided by International Center for Financial Asset Management and Engineering in its series FAME Research Paper Series with number rp150.
Date of creation: Jun 2005
Date of revision:
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Modeling asset prices; Affine-jump-diffusions; Characteristic functions; Stochastic volatility; Empirical estimation;
Find related papers by JEL classification:
- 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
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
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