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Good way to estimate jump parameters.
Posted: April 26th, 2006, 3:42 pm
by allenishands
Is there anyone willing to suggest a good way to estimate the jump parameters in the Merton jump model ?The parameters include jump rate, jump size mean and jump size volatility.I know there are people using EM to estimate those parameters.Any reply and suggestion about the estimation method are appreciated.
Good way to estimate jump parameters.
Posted: April 27th, 2006, 6:25 am
by allenishands
Or does anyone know papers about estimation of jump parameters ?
Good way to estimate jump parameters.
Posted: April 27th, 2006, 11:56 pm
by quantie
look at the paper by Ball and Torous and by Becker...
Good way to estimate jump parameters.
Posted: April 29th, 2006, 12:33 pm
by GogolaAnita
1. Historical calibration. If you know the transition density function of the process ( which is readily obtainable for jump pricesses with a double exponential jump magnitude distribution ) you an calibrate historically or by using the likelihood method. YOu then need a nonlinear optimizer ( we used Nelder-Meade) to do it.2. Calibration to option quotes. here you have to solve your pricing PIDE. YOu can search for the /lambda(t), /sigma(t) and /Gamma(t) in a form of piecewise constant functions [ staircase functions ] . Then you proceed with the bootstrapping as for " normal" options. Note, that because of the four parameters you can even calibrate to the smile.Success.
Good way to estimate jump parameters.
Posted: May 2nd, 2006, 7:50 am
by dinner