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The estimation of the Barndorff‐Nielsen and Shephard model from daily data based on measures of trading intensity

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  • Carl Lindberg

Abstract

We give a method to fit the Barndorff‐Nielsen and Shephard model [J. R. Stat. Soc. Ser. B 2001; 63:167–241] to daily data. Many researchers have established a connection between volatility and different measures of trading intensity, such as traded volume or number of trades. We benefit from this connection, and propose to use some measure of trading intensity as the volatility in the model in [J. R. Stat. Soc. Ser. B 2001; 63:167–241]. Our approach gives stable parameter estimates, and it is much easier to implement than the quadratic variation method. The efficiency of our method is illustrated by a statistical analysis on the Ericsson stock from the OMX Stockholmsbörsen during an exceptionally turbulent period of five years. The results indicate a good model fit. Copyright © 2007 John Wiley & Sons, Ltd.

Suggested Citation

  • Carl Lindberg, 2008. "The estimation of the Barndorff‐Nielsen and Shephard model from daily data based on measures of trading intensity," Applied Stochastic Models in Business and Industry, John Wiley & Sons, vol. 24(4), pages 277-289, July.
    • Handle: RePEc:wly:apsmbi:v:24:y:2008:i:4:p:277-289
    DOI: 10.1002/asmb.702
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    References listed on IDEAS

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    1. Elisa Nicolato & Emmanouil Venardos, 2003. "Option Pricing in Stochastic Volatility Models of the Ornstein‐Uhlenbeck type," Mathematical Finance, Wiley Blackwell, vol. 13(4), pages 445-466, October.
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