Volatility Activity: Specification and Estimation

Viktor Todorov, George Tauchen () and Iaryna Grynkiv

No 11-23, Working Papers from Duke University, Department of Economics

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 to estimate and evaluate, 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 infinite variation pure-jump martingale with symmetric jump distribution. 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)
Pages: 32
Date: 2011
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mst
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Journal Article: Volatility activity: Specification and estimation (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:duk:dukeec:11-23

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