Are These Shocks for Real? Sensitivity Analysis of the Significance of the Wavelet Response to Some CKLS Processes

Somayeh Kokabisaghi, Eric J. Pauwels, Katrien Van Meulder and André B. Dorsman
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Somayeh Kokabisaghi: Centrum Wiskunde & Informatica (CWI), Science Park 123, 1098 XG Amsterdam, The Netherlands
Eric J. Pauwels: Centrum Wiskunde & Informatica (CWI), Science Park 123, 1098 XG Amsterdam, The Netherlands
Katrien Van Meulder: QuantEssential, Partisanenstraat 35, 3010 Leuven, Belgium
André B. Dorsman: Vrije Universiteit (VU), De Boelelaan 1105, 1081 HV Amsterdam, The Netherlands

IJFS, 2018, vol. 6, issue 3, 1-12

Abstract: The CKLS process (introduced by Chan, Karolyi, Longstaff, and Sanders) is a typical example of a mean-reverting process. It combines random fluctuations with an elastic attraction force that tends to restore the process to a central value. As such, it is widely used to model the stochastic behaviour of various financial assets. However, the calibration of CKLS processes can be problematic, resulting in high levels of uncertainty on the parameter estimates. In this paper we show that it is still possible to draw solid conclusions about certain qualitative aspects of the time series, as the corresponding indicators are relatively insensitive to changes in the CKLS parameters.

Keywords: mean-reverting diffusion; CKLS (Chan, Karolyi, Longstaff, and Sanders); Generalized Method of Moments (GMM); wavelets; exogenous shock (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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