Distributional properties of continuous time processes: from CIR to bates
Research output: Contribution to journal › Research article › Contributed › peer-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 language | English |
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Pages (from-to) | 397-419 |
Number of pages | 23 |
Journal | AStA Advances in Statistical Analysis |
Volume | 107 (2023) |
Issue number | 3 |
Publication status | Published - 25 Aug 2022 |
Peer-reviewed | Yes |
External IDs
ORCID | /0000-0002-8909-4861/work/149081756 |
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Keywords
ASJC Scopus subject areas
Keywords
- CIR process, Distributional properties, Higher moments, Jump diffusion, Square-root process, Stochastic volatility