Integrated Ou Processes

Nuffield College, Oxford, Economics WP No 2001-W1

Posted: 17 Jan 2001

See all articles by Neil Shephard

Neil Shephard

Harvard University

Ole E. Barndorff-Nielsen

University of Aarhus - Thiele Centre, Department of Mathematical Sciences

Date Written: January 7, 2001

Abstract

In this paper we study the detailed distributional properties of integrated non-Gaussian OU (intOU) processes. Both exact and approximate results are given. We emphasise the study of the tail behaviour of the intOU process. Our results have many potential applications in financial economics, for OU processes are used as models of instantaneous volatility in stochastic volatility (SV) option pricing models. In this case an intOU process can be regarded as a model of integrated volatility. Hence the tail behaviour of the intOU process will determine the tail behaviour of returns generated by SV models.

Keywords: Background driving Levy process; Chronometer; Co-break; Econometrics; Integrated volatility; Kumulant function; Levy density; Levy process; Option pricing; OU processes; Stochastic volatility.

Suggested Citation

Shephard, Neil and Barndorff-Nielsen, Ole E., Integrated Ou Processes (January 7, 2001). Nuffield College, Oxford, Economics WP No 2001-W1. Available at SSRN: https://ssrn.com/abstract=255574

Neil Shephard (Contact Author)

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Ole E. Barndorff-Nielsen

University of Aarhus - Thiele Centre, Department of Mathematical Sciences ( email )

Ny Munkegade
Aarhus, DK 8000
Denmark

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
938
PlumX Metrics