The Fine Structure of Asset Returns: An Empirical Investigation

Posted: 3 May 2002

See all articles by Hélyette Geman

Hélyette Geman

University of London - Economics, Mathematics and Statistics

Peter Carr

New York University Finance and Risk Engineering

Dilip B. Madan

University of Maryland - Robert H. Smith School of Business

Marc Yor

Universite Paris

Abstract

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.

Suggested Citation

Geman, Helyette and Carr, Peter P. and Madan, Dilip B. and Yor, Marc, The Fine Structure of Asset Returns: An Empirical Investigation. Journal of Business, Vol. 75, No. 2, April 2002. Available at SSRN: https://ssrn.com/abstract=305710

Helyette Geman

University of London - Economics, Mathematics and Statistics ( email )

Malet Street
London, WC1E 7HX
United Kingdom

Peter P. Carr

New York University Finance and Risk Engineering ( email )

6 MetroTech Center
Brooklyn, NY 11201
United States
9176217733 (Phone)

HOME PAGE: http://engineering.nyu.edu/people/peter-paul-carr

Dilip B. Madan (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States
301-405-2127 (Phone)
301-314-9157 (Fax)

Marc Yor

Universite Paris ( email )

223 Rue Saint-Honore
Paris, 75775
France

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