Elena DUMITRESCU (Univ. Nanterre) “Assessing Volatility Persistence in Fractional Heston Models with Self-exciting Jumps “
November 26, 10:30 am - 11:30 am
FINANCIAL ECONOMETRICS SEMINAR
Date: 26th of November 2020
Elena DUMITRESCU (Univ. Nanterre) “Assessing Volatility Persistence in Fractional Heston Models with Self-exciting Jumps ”
Abstract : Two widely documented stylized facts are that volatility is persistent and stock market prices can jump. We derive the long memory behavior of a general Heston model with fractionally integrated stochastic volatility and self-exciting jumps of Hawkes type. We find that the quadratic variation necessarily exhibits less persistence than the integrated variance, which preserves the degree of long memory of the instantaneous volatility. Besides, when we rely on (possibly jump-robust) realized volatility measures to account for the unobserved nature of volatility, we find that traditional long memory estimators are dramatically downward biased, in particular when data are sampled at low frequencies. Conveniently, our Monte Carlo experiments reveal that even in presence of self-exciting jumps, some noise-robust local Whittle-type estimators offer good finite sample properties. We illustrate the usefulness of our theoretical findings in a risk forecasting study and show that our frequency-domain forecasting procedure based on an appropriate long-memory estimator outperforms the traditional benchmark models.
Jean-Michel ZAKOIAN (CREST )
CREST and ILB
Address : ENSAE ParisTech
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