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

Almut E. D. Veraart ()

CREATES Research Papers from School of Economics and Management, University of Aarhus

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)
New Economics Papers: this item is included in nep-ecm
Date: 2008-11-10
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Persistent link: http://EconPapers.repec.org/RePEc:aah:create:2008-57

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