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Inference on Self-Exciting Jumps in Prices and Volatility using High Frequency Measures

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  • Worapree Maneesoonthorn

    ()

  • Catherine S. Forbes

    ()

  • Gael M. Martin

    ()

Abstract

Dynamic jumps in the price and volatility of an asset are modelled using a joint Hawkes process in conjunction with a bivariate jump diffusion. A state space representation is used to link observed returns, plus nonparametric measures of integrated volatility and price jumps, to the specified model components; with Bayesian inference conducted using a Markov chain Monte Carlo algorithm. The calculation of marginal likelihoods for the proposed and related models is discussed. An extensive empirical investigation is undertaken using the S&P500 market index, with substantial support for dynamic jump intensities – including in terms of predictive accuracy – documented.

Suggested Citation

  • Worapree Maneesoonthorn & Catherine S. Forbes & Gael M. Martin, 2014. "Inference on Self-Exciting Jumps in Prices and Volatility using High Frequency Measures," Monash Econometrics and Business Statistics Working Papers 30/14, Monash University, Department of Econometrics and Business Statistics.
  • Handle: RePEc:msh:ebswps:2014-30
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    References listed on IDEAS

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    Cited by:

    1. David T. Frazier & Worapree Maneesoonthorn & Gael M. Martin & Brendan P.M. McCabe, 2018. "Approximate Bayesian forecasting," Monash Econometrics and Business Statistics Working Papers 2/18, Monash University, Department of Econometrics and Business Statistics.

    More about this item

    Keywords

    Dynamic price and volatility jumps; Stochastic volatility; Hawkes process; Nonlinear state space model; Bayesian Markov chain Monte Carlo; Global financial crises;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises

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