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Bayesian DEJD Model and Detection of Asymmetry in Jump Sizes

Author

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  • Maciej Kostrzewski

    (Cracow University of Economics)

Abstract

News might trigger jump arrivals in financial time series. The "bad" news and "good" news seem to have distinct impact. In the research, a double exponential jump distribution is applied to model downward and upward jumps. Bayesian double exponential jump-diffusion model is proposed. Theorems stated in the paper enable estimation of the model’s parameters, detection of jumps and analysis of jump frequency. The methodology, founded upon the idea of latent variables, is illustrated with simulated data.

Suggested Citation

  • Maciej Kostrzewski, 2015. "Bayesian DEJD Model and Detection of Asymmetry in Jump Sizes," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 7(1), pages 43-70, March.
    • Handle: RePEc:psc:journl:v:7:y:2015:i:1:p:43-70
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    References listed on IDEAS

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    2. Thierry Ane & Carole Metais, 2010. "Jump Distribution Characteristics: Evidence from European Stock Markets," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 9(1), pages 1-22, April.
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    7. Maciej Kostrzewski, 2012. "Bayesian Pricing of the Optimal-Replication Strategy for European Option in the JD(M)J Model," Dynamic Econometric Models, Uniwersytet Mikolaja Kopernika, vol. 12, pages 53-72.
    8. Yu, Jialin, 2007. "Closed-form likelihood approximation and estimation of jump-diffusions with an application to the realignment risk of the Chinese Yuan," Journal of Econometrics, Elsevier, vol. 141(2), pages 1245-1280, December.
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    Cited by:

    1. Maciej Kostrzewski, 2016. "Bayesian SVLEDEJ Model for Detecting Jumps in Logarithmic Growth Rates of One Month Forward Gas Contract Prices," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 8(3), pages 161-179, September.
    2. Maciej Kostrzewski & Jadwiga Kostrzewska, 2021. "The Impact of Forecasting Jumps on Forecasting Electricity Prices," Energies, MDPI, vol. 14(2), pages 1-17, January.
    3. Kostrzewski, Maciej & Kostrzewska, Jadwiga, 2019. "Probabilistic electricity price forecasting with Bayesian stochastic volatility models," Energy Economics, Elsevier, vol. 80(C), pages 610-620.

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    More about this item

    Keywords

    double exponential jump diffusion model; Kou model; Bernoulli jump-diffusion model; MCMC methods; latent variables;
    All these keywords.

    JEL classification:

    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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