Empirical Analysis of Affine Versus Nonaffine Variance Specifications in Jump-Diffusion Models for Equity Indices

Katja Ignatieva, Paulo Rodrigues and Norman Seeger

Journal of Business & Economic Statistics, 2015, vol. 33, issue 1, 68-75

Abstract: This article investigates several crucial issues that arise when modeling equity returns with stochastic variance. (i) Does the model need to include jumps even when using a nonaffine variance specification? We find that jump models clearly outperform pure stochastic volatility models. (ii) How do affine variance specifications perform when compared to nonaffine models in a jump diffusion setup? We find that nonaffine specifications outperform affine models, even after including jumps.

Date: 2015
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:taf:jnlbes:v:33:y:2015:i:1:p:68-75

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DOI: 10.1080/07350015.2014.922471

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