Department of Economics and Business Economics

A Discrete-Time Model for Daily S&P500 Returns and Realized Variations: Jumps and Leverage Effects

Research output: Working paperResearch

  • Tim Bollerslev
  • Uta Kretschmer, University of Bonn, Germany
  • Christian Pigorsch, University of Munich, Germany
  • George Tauschen, Duke University, United States
  • School of Economics and Management
We develop an empirically highly accurate discrete-time daily stochastic
volatility model that explicitly distinguishes between the jump and continuoustime
components of price movements using nonparametric realized variation
and Bipower variation measures constructed from high-frequency intraday data.
The model setup allows us to directly assess the structural inter-dependencies
among the shocks to returns and the two different volatility components. The
model estimates suggest that the leverage effect, or asymmetry between returns
and volatility, works primarily through the continuous volatility component.
The excellent fit of the model makes it an ideal candidate for an easyto-
implement auxiliary model in the context of indirect estimation of empirically
more realistic continuous-time jump diffusion and L´evy-driven stochastic
volatility models, effectively incorporating the interdaily dependencies inherent
in the high-frequency intraday data.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages47
Publication statusPublished - 2007

    Research areas

  • Realized volatility; Bipower variation; Jumps; Leverage effect; Simultaneous equation model

See relations at Aarhus University Citationformats

ID: 10570145