Integrated OU Processes

Ole Barndorff-Nielsen and Neil Shephard ()

No 2001-W1, Economics Papers from Economics Group, Nuffield College, University of Oxford

Abstract: In this paper we study the detailed distributional properties of integrated non-Gaussian OU (intOU) processes. Both exact results and approximate results are given. We emphasise the study of the tail behaviour of the intOU process. Our results have many potential applications in financial economics, for OU processes are used as models of instantaneous volatility in stochastic volatility (SV) models. In this case an intOU process can be regarded as a model of integrated volatility. Hence the tail behaviour of the intOU process will determine the tail behaviour of returns generated by SV models.

Keywords: Background driving Levy process; Chronometer; Co-break; Econometrics; Integrated volatility; Kumulant function; Levy density; Option pricing; OU processes; Stochastic volatility (search for similar items in EconPapers)
Pages: 23 pages
Date: 2001-05-31
New Economics Papers: this item is included in nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:nuf:econwp:0101

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