English

Do price and volatility jump together?

Statistical Finance 2010-10-26 v1 Probability

Abstract

We consider a process XtX_t, which is observed on a finite time interval [0,T][0,T], at discrete times 0,Δn,2Δn,.0,\Delta_n,2\Delta_n,\ldots. This process is an It\^{o} semimartingale with stochastic volatility σt2\sigma_t^2. Assuming that XX has jumps on [0,T][0,T], we derive tests to decide whether the volatility process has jumps occurring simultaneously with the jumps of XtX_t. There are two different families of tests for the two possible null hypotheses (common jumps or disjoint jumps). They have a prescribed asymptotic level as the mesh Δn\Delta_n goes to 00. We show on some simulations that these tests perform reasonably well even in the finite sample case, and we also put them in use on S&P 500 index data.

Keywords

Cite

@article{arxiv.1010.4990,
  title  = {Do price and volatility jump together?},
  author = {Jean Jacod and Viktor Todorov},
  journal= {arXiv preprint arXiv:1010.4990},
  year   = {2010}
}

Comments

Published in at http://dx.doi.org/10.1214/09-AAP654 the Annals of Applied Probability (http://www.imstat.org/aap/) by the Institute of Mathematical Statistics (http://www.imstat.org)

R2 v1 2026-06-21T16:33:24.633Z