This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Modeling foreign exchange rates with jumps

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
John M Maheu
Thomas H McCurdy

Additional information is available for the following registered author(s):

Abstract

We propose a new discrete-time model of returns in which jumps capture persistence in the conditional variance and higher-order moments. Jump arrival is governed by a heterogeneous Poisson process. The intensity is directed by a latent stochastic autoregressive process, while the jump-size distribution allows for conditional heteroskedasticity. Model evaluation focuses on the dynamics of the conditional distribution of returns using density and variance forecasts. Predictive likelihoods provide a period-by-period comparison of the performance of our heterogeneous jump model relative to conventional SV and GARCH models. Further, in contrast to previous studies on the importance of jumps, we utilize realized volatility to assess out-of-sample variance forecasts.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://repec.economics.utoronto.ca/files/tecipa-279-1.pdf
File Format: application/pdf
File Function: Main Text
Download Restriction: no

Publisher Info
Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-279.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length: 34 pages
Date of creation: 02 Feb 2007
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-279

Contact details of provider:
Postal: 150 St. George Street, Toronto, Ontario
Phone: (416) 978-5283
Fax: (416) 978-6713

For technical questions regarding this item, or to correct its listing, contact: (RePEc Maintainer).

Related research
Keywords: jump clustering jump dynamics MCMC predictive likelihood realized volatility Bayesian model average

Other versions of this item:

Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
G1 - Financial Economics - - General Financial Markets

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Melino, Angelo & Turnbull, Stuart M., 1990. "Pricing foreign currency options with stochastic volatility," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 239-265. [Downloadable!] (restricted)
  2. Gordon, Stephen, 1997. "Stochastic Trends, Deterministic Trends, and Business Cycle Turning Points," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(4), pages 411-34, July-Aug.. [Downloadable!]
    Other versions:
  3. Das, Sanjiv R., 2002. "The surprise element: jumps in interest rates," Journal of Econometrics, Elsevier, vol. 106(1), pages 27-65, January. [Downloadable!] (restricted)
  4. Torben G. Andersen & Luca Benzoni & Jesper Lund, 2002. "An Empirical Investigation of Continuous-Time Equity Return Models," Journal of Finance, American Finance Association, vol. 57(3), pages 1239-1284, 06. [Downloadable!] (restricted)
  5. Danielsson, J & Richard, J-F, 1993. "Accelerated Gaussian Importance Sampler with Application to Dynamic Latent Variable Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S153-73, Suppl. De. [Downloadable!] (restricted)
  6. Chib, Siddhartha, 2001. "Markov chain Monte Carlo methods: computation and inference," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 57, pages 3569-3649 Elsevier. [Downloadable!] (restricted)
  7. Oomen, Roel C.A., 2006. "Properties of Realized Variance Under Alternative Sampling Schemes," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 219-237, April. [Downloadable!] (restricted)
  8. Philippe Jorion, 1988. "On Jump Processes in the Foreign Exchange and Stock Markets," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 1(4), pages 427-445. [Downloadable!] (restricted)
  9. Chernov, Mikhail & Ronald Gallant, A. & Ghysels, Eric & Tauchen, George, 2003. "Alternative models for stock price dynamics," Journal of Econometrics, Elsevier, vol. 116(1-2), pages 225-257. [Downloadable!] (restricted)
  10. Geweke, John & Whiteman, Charles, 2006. "Bayesian Forecasting," Handbook of Economic Forecasting, Elsevier. [Downloadable!] (restricted)
  11. Bjørn Eraker & Michael Johannes & Nicholas Polson, 2003. "The Impact of Jumps in Volatility and Returns," Journal of Finance, American Finance Association, vol. 58(3), pages 1269-1300, 06. [Downloadable!] (restricted)
  12. Gourieroux, C & Monfort, A & Renault, E, 1993. "Indirect Inference," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S85-118, Suppl. De. [Downloadable!] (restricted)
    Other versions:
    • Gourieroux, C. & Monfort, A. & Renault, E., 1992. "Indirect Inference," Papers 92.279, Toulouse - GREMAQ.
    • Gourieroux, C. & Monfort, A & Renault, E., 1992. "Indirect Inference," Papers 9215, Institut National de la Statistique et des Etudes Economiques-.
  13. Sassan Alizadeh & Michael W. Brandt & Francis X. Diebold, 2002. "Range-Based Estimation of Stochastic Volatility Models," Journal of Finance, American Finance Association, vol. 57(3), pages 1047-1091, 06. [Downloadable!] (restricted)
  14. Jeff Fleming & Chris Kirby, 2003. "A Closer Look at the Relation between GARCH and Stochastic Autoregressive Volatility," Journal of Financial Econometrics, Oxford University Press, vol. 1(3), pages 365-419.
  15. S. James Press, 1967. "A Compound Events Model for Security Prices," Journal of Business, University of Chicago Press, vol. 40, pages 317. [Downloadable!]
  16. John M. Maheu & Thomas H. McCurdy, 2001. "Nonlinear Features of Realized FX Volatility," CIRANO Working Papers 2001s-42, CIRANO. [Downloadable!]
    Other versions:
  17. John F. Geweke, 1994. "Bayesian comparison of econometric models," Working Papers 532, Federal Reserve Bank of Minneapolis.
  18. Andersen, Torben G & Sorensen, Bent E, 1996. "GMM Estimation of a Stochastic Volatility Model: A Monte Carlo Study," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 328-52, July.
    Other versions:
  19. Ghysels, E. & Harvey, A. & Renault, E., 1996. "Stochastic Volatility," Cahiers de recherche 9613, Universite de Montreal, Departement de sciences economiques. [Downloadable!]
    Other versions:
  20. Chib, Siddhartha & Nardari, Federico & Shephard, Neil, 2002. "Markov chain Monte Carlo methods for stochastic volatility models," Journal of Econometrics, Elsevier, vol. 108(2), pages 281-316, June. [Downloadable!] (restricted)
  21. Min, Chung-ki & Zellner, Arnold, 1993. "Bayesian and non-Bayesian methods for combining models and forecasts with applications to forecasting international growth rates," Journal of Econometrics, Elsevier, vol. 56(1-2), pages 89-118, March. [Downloadable!] (restricted)
    Other versions:
  22. John M. Maheu & Thomas H. McCurdy, 2004. "News Arrival, Jump Dynamics, and Volatility Components for Individual Stock Returns," Journal of Finance, American Finance Association, vol. 59(2), pages 755-793, 04. [Downloadable!] (restricted)
    Other versions:
  23. Gallant, A. Ronald & Hsieh, David & Tauchen, George, 1997. "Estimation of stochastic volatility models with diagnostics," Journal of Econometrics, Elsevier, vol. 81(1), pages 159-192, November. [Downloadable!] (restricted)
  24. Jacquier, Eric & Polson, Nicholas G & Rossi, Peter E, 1994. "Bayesian Analysis of Stochastic Volatility Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(4), pages 371-89, October.
    Other versions:
Full references

Statistics
Access and download statistics

Did you know? IDEAS also computes impact factors for journals and working paper series.

This page was last updated on 2008-7-22.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.