Is it Brownian or fractional Brownian motion?

Meiyu Li, Ramazan Gencay and Yi Xue

Economics Letters, 2016, vol. 145, issue C, 52-55

Abstract: Fractional Brownian motion embeds Brownian motion as a special case and offers more flexible diffusion component for pricing models. We propose test statistics based on bi-power variation for testing Brownian motion against fractional Brownian motion alternatives. To filter out the prevalent existence of finite large jumps, a truncation method based on Hurst index estimator is proposed. Simulation results confirm the consistency of jump truncation framework with desirable empirical size and viable empirical power for our tests.

Keywords: Fractional Brownian motion; Hurst index test; Bi-power variation; Finite jumps (search for similar items in EconPapers)
JEL-codes: C1 C12 G12 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:145:y:2016:i:c:p:52-55

DOI: 10.1016/j.econlet.2016.05.012

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