Volatility activity: Specification and estimation

Viktor Todorov, George Tauchen*, Iaryna Grynkiv

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

11 Scopus citations

Abstract

The paper examines volatility activity and its asymmetry and undertakes further specification analysis of volatility models based on it. We develop new nonparametric statistics using high-frequency option-based VIX data to test for asymmetry in volatility jumps. We also develop methods for estimating and evaluating, using price data alone, a general encompassing model for volatility dynamics where volatility activity is unrestricted. The nonparametric application to VIX data, along with model estimation for S&P index returns, suggests that volatility moves are best captured by an infinite variation pure-jump martingale with a symmetric jump compensator around zero. The latter provides a parsimonious generalization of the jump-diffusions commonly used for volatility modeling.

Original languageEnglish (US)
Pages (from-to)180-193
Number of pages14
JournalJournal of Econometrics
Volume178
Issue numberPART 1
DOIs
StatePublished - Jan 2014

Keywords

  • Asymmetric volatility activity
  • High-frequency data
  • Laplace transform
  • Signed power variation
  • Specification testing
  • Stochastic volatility
  • Volatility jumps

ASJC Scopus subject areas

  • Economics and Econometrics

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