Working paper

Estimation of Volatility Functions in Jump Diffusions Using Truncated Bipower Increments

Jihyun Kim, Joon Park, and Bin Wang

Abstract

In the paper, we introduce and analyze a new methodology to estimate the volatility functions of jump diffusion models. Our methodology relies on the standard kernel estimation technique using truncated bipower increments. The relevant asymptotics are fully developed, which allow for the time span to increase as well as the sampling interval to decrease and accommodate both stationary and nonstationary recurrent processes. We evaluate the performance of our estimators by simulation and provide some illustrative empirical analyses.

Keywords

nonparametric estimation; jump diffusion; aymptotics; diffusive and jump; volatility functions; Lévy measure; optimal bandwidth; bipower increment; threshold truncation.;

JEL codes

  • C14: Semiparametric and Nonparametric Methods: General
  • C22: Time-Series Models • Dynamic Quantile Regressions • Dynamic Treatment Effect Models &bull Diffusion Processes
  • C58: Financial Econometrics

Reference

Jihyun Kim, Joon Park, and Bin Wang, “Estimation of Volatility Functions in Jump Diffusions Using Truncated Bipower Increments”, TSE Working Paper, n. 20-1096, May 2020.

See also

Published in

TSE Working Paper, n. 20-1096, May 2020