No-arbitrage semi-Martingale restrictions for continuous-time volatility models subject to leverage effects, jumps and i.i.d. noise

Description

"We develop a sequential procedure to test the adequacy of jump-diffusion models for return distributions. We rely on intraday data and nonparametric volatility measures, along with a new jump detection technique and appropriate conditional moment tests, for assessing the import of jumps and leverage effects. A novel robust-to-jumps approach is utilized to alleviate microstructure frictions for realized volatility estimation. Size and power of the procedure are explored through Monte Carlo methods. Our empirical findings support the jump-diffusive representation for S&P500 futures returns but reveal it is critical to account for leverage effects and jumps to maintain the underlying semi-martingale assumption"--National Bureau of Economic Research web site.

Subjects

Series Statement

• NBER working paper series -- no. 12963.
• Working paper series (National Bureau of Economic Research) -- working paper no. 12963.

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Other Editions

• No-arbitrage semi-Martingale restrictions for continuous-time volatility models subject to leverage effects, jumps and i.i.d. noise: theory and testable distributional implicationsNational Bureau of Economic Research2007-01-01
• No-arbitrage semi-martingale restrictions for continuous-time volatility models subject to leverage effects, jumps and i.i.d. noiseElectronic resourceNational Bureau of Economic Research2007-01-01