Realized Laplace transforms for estimation of jump diffusive volatility models

Journal Article (Journal Article)

We develop an efficient and analytically tractable method for estimation of parametric volatility models that is robust to price-level jumps. The method entails first integrating intra-day data into the Realized Laplace Transform of volatility, which is a model-free estimate of the daily integrated empirical Laplace transform of the unobservable volatility. The estimation is then done by matching moments of the integrated joint Laplace transform with those implied by the parametric volatility model. In the empirical application, the best fitting volatility model is a non-diffusive two-factor model where low activity jumps drive its persistent component and more active jumps drive the transient one. © 2011 Elsevier B.V. All rights reserved.

Full Text

Duke Authors

Cited Authors

  • Todorov, V; Tauchen, G; Grynkiv, I

Published Date

  • October 1, 2011

Published In

Volume / Issue

  • 164 / 2

Start / End Page

  • 367 - 381

International Standard Serial Number (ISSN)

  • 0304-4076

Digital Object Identifier (DOI)

  • 10.1016/j.jeconom.2011.06.016

Citation Source

  • Scopus