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Change Point Detection and Estimation of the Two-Sided Jumps of Asset Returns Using a Modified Kalman Filter

Ourania Theodosiadou (), Sotiris Skaperas () and George Tsaklidis ()
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Ourania Theodosiadou: Department of Mathematics, Aristotle University of Thessaloniki, Thessaloniki 54124, Greece
Sotiris Skaperas: Department of Mathematics, Aristotle University of Thessaloniki, Thessaloniki 54124, Greece
George Tsaklidis: Department of Mathematics, Aristotle University of Thessaloniki, Thessaloniki 54124, Greece

Risks, 2017, vol. 5, issue 1, 1-14

Abstract: In the first part of the paper, the positive and negative jumps of NASDAQ daily (log-) returns and three of its stocks are estimated based on the methodology presented by Theodosiadou et al. 2016, where jumps are assumed to be hidden random variables. For that reason, the use of stochastic state space models in discrete time is adopted. The daily return is expressed as the difference between the two-sided jumps under noise inclusion, and the recursive Kalman filter algorithm is used in order to estimate them. Since the estimated jumps have to be non-negative, the associated pdf truncation method, according to the non-negativity constraints, is applied. In order to overcome the resulting underestimation of the empirical time series, a scaling procedure follows the stage of truncation. In the second part of the paper, a nonparametric change point analysis concerning the (variance–) covariance is applied to the NASDAQ return time series, as well as to the estimated bivariate jump time series derived after the scaling procedure and to each jump component separately. A similar change point analysis is applied to the three other stocks of the NASDAQ index.

Keywords: positive-negative return jumps; Kalman filter; pdf truncation; change point detection (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 M2 M4 K2 (search for similar items in EconPapers)
Date: 2017
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