Impact of Time-Inhomogeneous Jumps and Leverage Type Effects on Returns and Realised Variances
Imperial College London; CREATES
November 10, 2008
CREATES Working Paper No. 2008-57
This paper studies the effect of time - inhomogeneous jumps and leverage type effects on realised variance calculations when the logarithmic asset price is given by a Levy-driven stochastic volatility model. In such a model, the realised variance is an inconsistent estimator of the integrated variance. Nevertheless it can be used within a quasi-maximum likelihood setup to draw inference on the model parameters. In order to do that, this paper introduces a new methodology for deriving all cumulants of the returns and realised variance in explicit form by solving a recursive system of inhomogeneous ordinary differential equations.
Number of Pages in PDF File: 43
Date posted: November 11, 2008
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