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Int. J. Financial Stud. 2018, 6(3), 76; https://doi.org/10.3390/ijfs6030076

Are These Shocks for Real? Sensitivity Analysis of the Significance of the Wavelet Response to Some CKLS Processes

1
Centrum Wiskunde & Informatica (CWI), Science Park 123, 1098 XG Amsterdam, The Netherlands
2
QuantEssential, Partisanenstraat 35, 3010 Leuven, Belgium
3
Vrije Universiteit (VU), De Boelelaan 1105, 1081 HV Amsterdam, The Netherlands
*
Author to whom correspondence should be addressed.
Received: 7 July 2018 / Revised: 22 August 2018 / Accepted: 30 August 2018 / Published: 2 September 2018
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Abstract

The CKLS process (introduced by Chan, Karolyi, Longstaff, and Sanders) is a typical example of a mean-reverting process. It combines random fluctuations with an elastic attraction force that tends to restore the process to a central value. As such, it is widely used to model the stochastic behaviour of various financial assets. However, the calibration of CKLS processes can be problematic, resulting in high levels of uncertainty on the parameter estimates. In this paper we show that it is still possible to draw solid conclusions about certain qualitative aspects of the time series, as the corresponding indicators are relatively insensitive to changes in the CKLS parameters. View Full-Text
Keywords: mean-reverting diffusion; CKLS (Chan, Karolyi, Longstaff, and Sanders); Generalized Method of Moments (GMM); wavelets; exogenous shock mean-reverting diffusion; CKLS (Chan, Karolyi, Longstaff, and Sanders); Generalized Method of Moments (GMM); wavelets; exogenous shock
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
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Kokabisaghi, S.; Pauwels, E.J.; Van Meulder, K.; Dorsman, A.B. Are These Shocks for Real? Sensitivity Analysis of the Significance of the Wavelet Response to Some CKLS Processes. Int. J. Financial Stud. 2018, 6, 76.

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Int. J. Financial Stud. EISSN 2227-7072 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
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