Impact of time–inhomogeneous jumps and leverage type effects on returns and realised variances

Almut Veraart

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: This paper studies the effect of time–inhomogeneous jumps and leverage type effects on realised variance calculations when the logarithmic asset price is given by a Lévy–driven stochastic volatility model. In such a model, the realised variance is an inconsistent estimator of the integrated variance. Nevertheless it can be used within a quasi–maximumlikelihood setup to draw inference on the model parameters. In order to do that, this paper introduces a new methodology for deriving all cumulants of the returns and realised variance in explicit form by solving a recursive system of inhomogeneous ordinary differential equations.

Keywords: Lévy processes; stochastic volatility; leverage effect; superposition; realised variance (search for similar items in EconPapers)
JEL-codes: C10 C13 C14 G10 G12 (search for similar items in EconPapers)
Pages: 41
Date: 2008-11-10
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (2)

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