Estimation of Affine Jump-Diffusions Using Realized Variance and Bipower Variation in Empirical Characteristic Function Method
Author | : Alex Levin |
Publisher | : |
Total Pages | : 40 |
Release | : 2015 |
ISBN-10 | : OCLC:1308397283 |
ISBN-13 | : |
Rating | : 4/5 ( Downloads) |
Download or read book Estimation of Affine Jump-Diffusions Using Realized Variance and Bipower Variation in Empirical Characteristic Function Method written by Alex Levin and published by . This book was released on 2015 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: Extensions of Empirical Characteristic Function (ECF) method for estimating parameters of affine jump-diffusions with unobserved stochastic volatility (SV) are considered. We develop a new approach based on a bias-corrected ECF for the Realized Variance (in the case of diffusions) and Bipower Variation or second generation jump-robust estimators of integrated stochastic variance (in the case of jumps in the underlying). Effective numerical implementation of Unconditional and Conditional ECF methods through a special configuration of grid points in the frequency domain is proposed. The method is illustrated based on a multifactor jump-diffusion SV model with exponential Poisson jumps in the volatility and underlying correlated by a new ''Gamma-factor copula'' that allows for analytically tractable joint characteristic function. A closed form Lauricella-Kummer-type density is derived for the stationary SV distribution. This distribution extends in a certain way a Generalized Gamma Convolution family of Thorin, and it is proven to be infinitely divisible, but not always self-decomposable. Numerical results for S&P 500 Index, VIX Index and rigorous Monte-Carlo study for a number of SV models are presented.