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No-Arbitrage Semi-Martingale Restrictions for Continuous-Time Volatility Models subject to Leverage Effects, Jumps and i.i.d. Noise: Theory and Testable Distributional Implications / Torben G. Andersen, Tim Bollerslev, Dobrislav Dobrev.
- Format:
- Book
- Author/Creator:
- Andersen, Torben G.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w12963.
- NBER working paper series no. w12963
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Other Title:
- No-Arbitrage Semi-Martingale Restrictions for Continuous-Time Volatility Models subject to Leverage Effects, Jumps and i.i.d. Noise
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2007.
- Summary:
- 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.
- Notes:
- Print version record
- March 2007.
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