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Estimation of a Stochastic-Volatility Jump-Diffusion Model

Economic Analysis Review

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Title Estimation of a Stochastic-Volatility Jump-Diffusion Model
Estimation of a Stochastic-Volatility Jump-Diffusion Model
 
Creator Craine, Roger
Lochstoer, Lars A.
Syrtveit, Knut
 
Description This paper makes two contributions: (1) it presents estimates of a continuous-time stochastic-volatility jump-diffusion process (SVJD) using a simulation-based estimator, and (2) it shows that misspecified models that allow for jumps, but not stochastic volatility, can give very bad estimates of the true process. Simulation-based estimation is a very flexible and powerful technique. It is ideally suited to high frequency financial data. It can estimate models with intractable likelihood functions, and since the simulations can be performed in (essentially) continuous-time the estimates are consistent estimates of the parameters of the continuous-time process.
This paper makes two contributions: (1) it presents estimates of a continuous-time stochastic-volatility jump-diffusion process (SVJD) using a simulation-based estimator, and (2) it shows that misspecified models that allow for jumps, but not stochastic volatility, can give very bad estimates of the true process. Simulation-based estimation is a very flexible and powerful technique. It is ideally suited to high frequency financial data. It can estimate models with intractable likelihood functions, and since the simulations can be performed in (essentially) continuous-time the estimates are consistent estimates of the parameters of the continuous-time process.
 
Publisher Universidad Alberto Hurtado - Facultad de Economía y Negocios
 
Contributor —
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Date 2010-03-05
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
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Format application/pdf
 
Identifier http://www.rae-ear.org/index.php/rae/article/view/98
 
Source Revista de Análisis Económico - Economic Analysis Review; Vol 15, No 1 (2000); 61-87
Revista de Análisis Económico – Economic Analysis Review; Vol 15, No 1 (2000); 61-87
0718-8870
0716-5927
 
Language eng
 
Relation http://www.rae-ear.org/index.php/rae/article/view/98/188