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Impact of jumps on returns and realised variances: econometric analysis of time-deformed Levy processes

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Author Info

  • Ole E. Barndorff-Nielsen

    ()
    (University of Aarhus, Denmark)

  • Neil Shephard

    ()
    (Nuffield College, Oxford)

Abstract

In order to assess the effect of jumps on realised variance calculations, we study some of the econometric properties of time-changed Levy processes. We show that in general we can derive the second order properties of realised variances and use these to estimate the parameters of such models. Our analytic results give a first indication of the degrees of inconsistency of realised variance as an estimator of the time-change in the non-Brownian case. Further, our results suggest volatility is even more predictable than has been shown by the recent econometric work on realised variance.

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File URL: http://www.nuff.ox.ac.uk/economics/papers/2003/w12/qml_small.pdf
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Bibliographic Info

Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2003-W12.

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Length: 47 pages
Date of creation: 01 Apr 2003
Date of revision:
Handle: RePEc:nuf:econwp:0312

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Web page: http://www.nuff.ox.ac.uk/economics/

Related research

Keywords: Kalman filter; Levy process; Long-memory; Quasi-likelihood; Realised variance; Stochastic volatility; Time-change.;

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References

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