Distributional properties of continuous time processes: from CIR to bates

Research output: Contribution to journalResearch articleContributedpeer-review

Contributors

Abstract

In this paper, we compute closed-form expressions of moments and comoments for the CIR process which allows us to provide a new construction of the transition probability density based on a moment argument that differs from the historic approach. For Bates’ model with stochastic volatility and jumps, we show that finite difference approximations of higher moments such as the skewness and the kurtosis are unstable and, as a remedy, provide exact analytic formulas for log-returns. Our approach does not assume a constant mean for log-price differentials but correctly incorporates volatility resulting from Ito’s lemma. We also provide R, MATLAB, and Mathematica modules with exact implementations of the theoretical conditional and unconditional moments. These modules should prove useful for empirical research.

Details

Original languageEnglish
Pages (from-to)397-419
Number of pages23
JournalAStA Advances in Statistical Analysis
Volume107 (2023)
Issue number3
Publication statusPublished - 25 Aug 2022
Peer-reviewedYes

External IDs

ORCID /0000-0002-8909-4861/work/149081756

Keywords

Keywords

  • CIR process, Distributional properties, Higher moments, Jump diffusion, Square-root process, Stochastic volatility

Library keywords