Modeling Greek equity prices using jump diffusion processes

Modeling Greek equity prices using jump diffusion processes

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Article ID: iaor20073771
Country: Greece
Volume: 6
Issue: 2
Publication Date: May 2006
Journal: Operational Research - An International Journal
Authors: , ,
Keywords: Share prices, diffusion process
Abstract:

This study compares two popular jump diffusion models using equity data from the Greek market. The models considered are those proposed by Merton and Kou and differ on the specification of the jump component. In the former model jumps follow a lognormal distribution whereby in the latter the jump component is drawn from a double exponential distribution. Maximum Likelihood estimation provides evidence of jumps in both basket indices and individual stock returns. Moreover, the empirical comparison shows that double exponential jumps are more consistent with the empirical data.

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