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Donatien HAINAUT (Université Catholique de Louvain, Belgium) “A Self-Excited Switching Jump Diffusion (SESJD): Properties, Calibration and Hitting Time.

January 25, 4:15 pm - 5:15 pm

FINANCIAL ECONOMETRICS SEMINAR

Time: 16:15 pm – 17:15 pm
Date: 25th of January 2018
Place: Room 3001.

Donatien HAINAUT (Université Catholique de Louvain, Belgium) “A Self-Excited Switching Jump Diffusion (SESJD): Properties, Calibration and Hitting Time”.

Abstract: A way to model the clustering of jumps in asset prices consists in combining a diffusion process with a jump Hawkes process in the dynamics of the asset prices. This article proposes a new alternative model based on regime switching processes, referred to as a self-excited switching jump diffusionb (SESJD) model. In this model, jumps in the asset prices are synchronized with changes of states of a hidden Markov chain. The matrix of transition probabilities of this chain is designed in order to approximate the dynamics of a Hawkes process. This model presents several advantages compared to other jump clustering models. Firstly, the SESJD model is easy to fit to time series since estimation can be performed with an enhanced Hamilton’s _lter. Secondly, the model explains various forms of option volatility smiles. Thirdly, several properties about the hitting times of the SESJD model can be inferred by using a fluid embedding technique, which leads to closed form expressions for some financial derivatives, like perpetual binary options.

 

Organizers:
Jean-Michel ZAKOIAN (CREST )

Sponsors:
CREST and ILB

Location:
Address
 : ENSAE ParisTech
5, avenue Henry Le Chatelier
91120 Palaiseau
How to come?

 

Details

Date:
January 25
Time:
4:15 pm - 5:15 pm
Event Categories:
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