Empirical analysis of affine versus nonaffine variance specifications in jump-diffusion models for equity indices

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

Research output: Contribution to journalArticleAcademicpeer-review

2 Citations (Scopus)

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.

Data source: Index return data from CRSP
Original languageEnglish
Pages (from-to)68-75
Number of pages8
JournalJournal of Business & Economic Statistics
Volume33
Issue number1
DOIs
Publication statusPublished - 2 Jan 2015

Keywords

  • Deviance information criteria
  • Bayesian inference
  • Stochastic volatility
  • Markov chain Monte Carlo
  • STOCHASTIC VOLATILITY MODELS
  • CONTINUOUS-TIME MODELS
  • BAYESIAN-ANALYSIS
  • OPTION PRICES
  • DYNAMICS
  • RETURNS
  • MARKETS
  • SPOT

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