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 language | English (US) |
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Pages (from-to) | 180-193 |
Number of pages | 14 |
Journal | Journal of Econometrics |
Volume | 178 |
Issue number | PART 1 |
DOIs | |
State | Published - 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