Jump detection with power and bipower variation processes

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2007
Dursun, Havva Özlem
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In this study, we show that realized bipower variation which is an extension of realized power variation is an alternative method that estimates integrated variance like realized variance. It is seen that realized bipower variation is robust to rare jumps. Robustness means that if we add rare jumps to a stochastic volatility process, realized bipower variation process continues to estimate integrated variance although realized variance estimates integrated variance plus the quadratic variation of the jump component. This robustness is crucial since it separates the discontinuous component of quadratic variation which comes from the jump part of the logarithmic price process. Thus, we demonstrate that if the logarithmic price process is in the class of stochastic volatility plus rare jumps processes then the difference between realized variance and realized bipower variation process estimates the discontinuous component of the quadratic variation. So, quadratic variation of the jump component can be estimated and jump detection can be achieved.
Finance.
http://etd.lib.metu.edu.tr/upload/12608940/index.pdf
https://hdl.handle.net/11511/16820
Graduate School of Applied Mathematics, Thesis

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Citation Formats
H. Ö. Dursun, “Jump detection with power and bipower variation processes,” M.S. - Master of Science, Middle East Technical University, 2007.
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