EconPapers    
Economics at your fingertips  
 

Realized jumps on financial markets and predicting credit spreads

George Tauchen () and Hao Zhou

No 2006-35, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper extends the jump detection method based on bi-power variation to identify realized jumps on financial markets and to estimate parametrically the jump intensity, mean, and variance. Finite sample evidence suggests that jump parameters can be accurately estimated and that the statistical inferences can be reliable, assuming that jumps are rare and large. Applications to equity market, treasury bond, and exchange rate reveal important differences in jump frequencies and volatilities across asset classes over time. For investment grade bond spread indices, the estimated jump volatility has more forecasting power than interest rate factors and volatility factors including option-implied volatility, with control for systematic risk factors. A market jump risk factor seems to capture the low frequency movements in credit spreads.

Keywords: Jump processes; Diffusion processes; Risk (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.federalreserve.gov/pubs/feds/2006/200635/200635abs.html (text/html)
http://www.federalreserve.gov/pubs/feds/2006/200635/200635pap.pdf (application/pdf)

Related works:
Journal Article: Realized jumps on financial markets and predicting credit spreads (2011) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2006-35

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().

 
Page updated 2024-05-15
Handle: RePEc:fip:fedgfe:2006-35