Volatility activity: Specification and estimation

Viktor Todorov, George Tauchen () and Iaryna Grynkiv

Journal of Econometrics, 2014, vol. 178, issue P1, 180-193

Abstract: The paper examines volatility activity and its asymmetry and undertakes further specification analysis of volatility models based on it. We develop new nonparametric statistics using high-frequency option-based VIX data to test for asymmetry in volatility jumps. We also develop methods for estimating and evaluating, using price data alone, a general encompassing model for volatility dynamics where volatility activity is unrestricted. The nonparametric application to VIX data, along with model estimation for S&P index returns, suggests that volatility moves are best captured by an infinite variation pure-jump martingale with a symmetric jump compensator around zero. The latter provides a parsimonious generalization of the jump-diffusions commonly used for volatility modeling.

Keywords: Asymmetric volatility activity; High-frequency data; Laplace transform; Signed power variation; Specification testing; Stochastic volatility; Volatility jumps (search for similar items in EconPapers)
JEL-codes: C51 C52 G12 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Working Paper: Volatility Activity: Specification and Estimation (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:178:y:2014:i:p1:p:180-193

DOI: 10.1016/j.jeconom.2013.08.015

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