Volatility Jumps

Viktor Todorov and George Tauchen ()

No 10-09, Working Papers from Duke University, Department of Economics

Abstract: The paper undertakes a non-parametric analysis of the very high frequency movements in stock market volatility using very finely sampled data on the S&P VIX index compiled by the CBOE. The data suggest that stock market volatility is best described as a pure jump process without a continuous component. The finding stands in contrast to nonparametric results, reported here and elsewhere, that the stock price itself is not a pure jump process but rather contains a continuous martingale component. The jumps in stock volatility are found to be so active that this discredits many recently proposed stochastic volatility models, including the classic affine model with compound Poisson jumps that is widely used in financial modeling and practice. Additional empirical work presents strong evidence for many common jumps, or co-jumps, in both the stock price and stock volatility.

Keywords: Stochastic volatility; activity index; Blumenthal-Getoor index; jumps; VIX index; jump risk premium (search for similar items in EconPapers)
JEL-codes: C22 C51 C52 G12 G13 G14 (search for similar items in EconPapers)
Pages: 26
Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Volatility Jumps (2011)
Journal Article: Volatility Jumps (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:duk:dukeec:10-09

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