Non‐parametric Threshold Estimation for Models with Stochastic Diffusion Coefficient and Jumps

Cecilia Mancini

Scandinavian Journal of Statistics · 2009 · 470 citations · 24 references

Concepts

TL;DR

The study focuses on stochastic processes driven by diffusions and jumps. The authors aim to identify jump times exceeding a defined threshold from discrete observations. They develop a non‑parametric method that detects large jumps from discrete data. The method yields a consistent non‑parametric estimator of integrated volatility for Lévy infinite‑activity jumps, provides jump‑size estimation and CLTs for finite‑activity jumps, and outperforms multipower variation techniques in finite‑sample simulations, especially when high‑frequency data are unavailable. Abstract.

Abstract

Abstract. We consider a stochastic process driven by diffusions and jumps. Given a discrete record of observations, we devise a technique for identifying the times when jumps larger than a suitably defined threshold occurred. This allows us to determine a consistent non‐parametric estimator of the integrated volatility when the infinite activity jump component is Lévy. Jump size estimation and central limit results are proved in the case of finite activity jumps. Some simulations illustrate the applicability of the methodology in finite samples and its superiority on the multipower variations especially when it is not possible to use high frequency data.

References

24