August 22, 2017

Seminar Series on Quantitative Finance - October 29, 2003

Sponsored by PhiMac


Yacine Ait-Sahalia, Princeton University
Disentangling Volatility from Jumps
Realistic models for financial asset prices used in portfolio choice, option pricing or risk management include both a continuous Brownian and a jump components. This paper studies our ability to distinguish one from the other. I find that, surprisingly, it is possible to perfectly disentangle Brownian noise from jumps. This is true even if, unlike the usual Poisson jumps, the jump process exhibits an infinite number of small jumps in any finite time interval, which ought to be harder to distinguish from Brownian noise, itself made up of many small moves.

Nour Meddahi, Université de Montreal
Correcting the Errors: Volatility Forecast Evaluation based on High-Frequency Data and Realized Volatilities
Co-authors: Torben Andersen (Northwestern University) and Tim Bollerslev (Duke University)
In this talk we will develop general model-free adjustment procedures for the calculation of unbiased volatility loss functions based on practically feasible realized volatility benchmarks. The procedures, which exploit the recent asymptotic distributional results in Barndorff-Nielsen and Shephard (2002), are both easy-to-implement and highly accurate in empirically realistic situations. On properly accounting for the measurement errors in the volatility forecast evaluations reported in Andersen, Bollerslev, Diebold and Labys (2003), the adjustments result in markedly higher estimates for the true degree of return-volatility predictability.

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