Bayesian DEJD model and detection of asymmetric jumps

Maciej Kostrzewski

Papers from arXiv.org

Abstract: News might trigger jump arrivals in financial time series. The "bad" and "good" news seems to have distinct impact. In the research, a double exponential jump distribution is applied to model downward and upward jumps. Bayesian double exponential jump-diffusion model is proposed. Theorems stated in the paper enable estimation of the model's parameters, detection of jumps and analysis of jump frequency. The methodology, founded upon the idea of latent variables, is illustrated with two empirical studies, employing both simulated and real-world data (the KGHM index). News might trigger jump arrivals in financial time series. The "bad" and "good" news seems to have distinct impact. In the research, a double exponential jump distribution is applied to model downward and upward jumps. Bayesian double exponential jump-diffusion model is proposed. Theorems stated in the paper enable estimation of the model's parameters, detection of jumps and analysis of jump frequency. The methodology, founded upon the idea of latent variables, is illustrated with two empirical studies, employing both simulated and real-world data (the KGHM index).

Date: 2014-04
New Economics Papers: this item is included in nep-ecm and nep-ets
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