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Volatility modeling with jumps: applications to Russian and American stock markets (in Russian)

Author

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  • Sergey Belousov

    (Alfa-Bank, Russia)

Abstract

It is well known that stock returns exhibit conditional heteroskedasticity, and their distribution displays leptokurtosis. Moreover, modern financial markets are characterized by large discrete changes in asset returns. One of the most popular models describing this behavior is the GARCH-J(ump) model, where the arrival of jumps is governed by a Poisson distribution. In this paper we propose a new specification called GARCH-TJI, where the jump intensity depends on the absolute lagged return and whether it exceeds some threshold. The comparative analysis demonstrates a higher effectiveness of the GARCH-TJI model than of the GARCH-ARJI specification described in the literature.

Suggested Citation

  • Sergey Belousov, 2006. "Volatility modeling with jumps: applications to Russian and American stock markets (in Russian)," Quantile, Quantile, issue 1, pages 101-110, September.
  • Handle: RePEc:qnt:quantl:y:2006:i:1:p:101-110
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    References listed on IDEAS

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    1. S. James Press, 1967. "A Compound Events Model for Security Prices," The Journal of Business, University of Chicago Press, vol. 40, pages 317-317.
    2. Bates, David S, 1991. " The Crash of '87: Was It Expected? The Evidence from Options Markets," Journal of Finance, American Finance Association, vol. 46(3), pages 1009-1044, July.
    3. Cunha, Miguel Pina e, 2002. "Jazz & novos formatos organizacionais. All that jazz: três aplicações do conceito de improvisação organizacional," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 42(3), July.
    4. Philippe Jorion, 1988. "On Jump Processes in the Foreign Exchange and Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 1(4), pages 427-445.
    5. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    6. Wing H. Chan, 2003. "A correlated bivariate Poisson jump model for foreign exchange," Empirical Economics, Springer, vol. 28(4), pages 669-685, November.
    7. Andersen, Torben G, 1996. " Return Volatility and Trading Volume: An Information Flow Interpretation of Stochastic Volatility," Journal of Finance, American Finance Association, vol. 51(1), pages 169-204, March.
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    More about this item

    Keywords

    stock returns; conditional heteroskedasticity; jump intensity;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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