Estimation for a Second-Order Jump Diffusion Model from Discrete Observations: Application to Stock Market Returns

Tianshun Yan, Yanyong Zhao and Shuanghua Luo

Discrete Dynamics in Nature and Society, 2018, vol. 2018, 1-8

Abstract:

This paper proposes a second-order jump diffusion model to study the jump dynamics of stock market returns via adding a jump term to traditional diffusion model. We develop an appropriate maximum likelihood approach to estimate model parameters. A simulation study is conducted to evaluate the performance of the estimation method in finite samples. Furthermore, we consider a likelihood ratio test to identify the statistically significant presence of jump factor. The empirical analysis of stock market data from North America, Asia, and Europe is provided for illustration.

Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnddns:9549707

DOI: 10.1155/2018/9549707

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