Disentangling Volatility from Jumps

No 9915, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Realistic models for financial asset prices used in portfolio choice, option pricing or risk management include both a continuous Brownian and a jump components. This paper studies our ability to distinguish one from the other. I find that, surprisingly, it is possible to perfectly disentangle Brownian noise from jumps. This is true even if, unlike the usual Poisson jumps, the jump process exhibits an infinite number of small jumps in any finite time interval, which ought to be harder to distinguish from Brownian noise, itself made up of many small moves.

JEL-codes: C22 G12 (search for similar items in EconPapers)
Date: 2003-08
New Economics Papers: this item is included in nep-cfn, nep-ecm, nep-ets, nep-fmk, nep-mac and nep-rmg
Note: AP
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Citations: View citations in EconPapers (3)

Published as Journal of Financial Economics, 2004, vol. 74, pp. 487-528

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