Article ID: | iaor20073771 |
Country: | Greece |
Volume: | 6 |
Issue: | 2 |
Publication Date: | May 2006 |
Journal: | Operational Research - An International Journal |
Authors: | Markellos Raphael N., Dotsis George, Psychoyios Dimitris |
Keywords: | Share prices, diffusion process |
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.