Empirical Analysis of Affine vs. Nonaffine Variance Specifications in Jump-Diffusion Models for Equity Indices

N.J. Seeger, P.J.M. Rodrigues, K. Ignatieva

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

This article investigates several crucial issues that arise when modeling equity returns with stochastic variance. (i) Does the model need to include jumps even when using a nonaffine variance specification? We find that jump models clearly outperform pure stochastic volatility models. (ii) How do affine variance specifications perform when compared to nonaffine models in a jump diffusion setup? We find that nonaffine specifications outperform affine models, even after including jumps.
Original languageEnglish
Pages (from-to)68-75
Number of pages24
JournalJournal of Business and Economic Statistics
Volume33
Issue number1
Early online date26 Jan 2015
DOIs
Publication statusPublished - 2015

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Jump-diffusion Model
Empirical Analysis
Equity
equity
Specification
Jump
Jump Diffusion
Stochastic Volatility Model
Model
Empirical analysis
Jump-diffusion model
Modeling

Cite this

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title = "Empirical Analysis of Affine vs. Nonaffine Variance Specifications in Jump-Diffusion Models for Equity Indices",
abstract = "This article investigates several crucial issues that arise when modeling equity returns with stochastic variance. (i) Does the model need to include jumps even when using a nonaffine variance specification? We find that jump models clearly outperform pure stochastic volatility models. (ii) How do affine variance specifications perform when compared to nonaffine models in a jump diffusion setup? We find that nonaffine specifications outperform affine models, even after including jumps.",
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Empirical Analysis of Affine vs. Nonaffine Variance Specifications in Jump-Diffusion Models for Equity Indices. / Seeger, N.J.; Rodrigues, P.J.M.; Ignatieva, K.

In: Journal of Business and Economic Statistics, Vol. 33, No. 1, 2015, p. 68-75.

Research output: Contribution to JournalArticleAcademicpeer-review

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