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Testing jumps for individual stock
Finance & Accounting
Pages 16 (4016 words)
Literature review 1. BNS 2004 – 2006 a) Theoretical background In order not to require a fully observed state variable as is realized in Ait-Sahalia's approach in 2001, evidence is provided by Barndorff-Nielsen and Shephard (2004a, 2006) of the presence of jumps in higher frequency financial time series.
In this test, emphasis is placed in the comparison of two measures of variance: the Bipower Variation which is robust to jump contribution and the Realized Variance which includes the contribution of jumps to the total variance. And based on a high frequency data set of exchange rates, a statistically significant test of the difference between these two measures of variance provides evidence on the presence of jumps. ...
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