The Fine Structure of Asset Returns

Download or read book The Fine Structure of Asset Returns written by Hélyette Geman and published by . This book was released on 2002 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the importance of diffusion and jumps in a new model for asset returns. In contrast to standard models, we allow for jump components displaying finite or infinite activity and variation. Empirical investigations of time series indicate that index dynamics are devoid of a diffusion component, which may be present in the dynamics of individual stocks. This leads to the conjecture, confirmed on options data, that the risk-neutral process should be free of a diffusion component. We conclude that the statistical and risk-neutral processes for equity prices are pure jump processes of infinite activity and finite variation.