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Risks 2017, 5(1), 15; doi:10.3390/risks5010015

Change Point Detection and Estimation of the Two-Sided Jumps of Asset Returns Using a Modified Kalman Filter

Department of Mathematics, Aristotle University of Thessaloniki, Thessaloniki 54124, Greece
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Academic Editor: Qihe Tang
Received: 31 August 2016 / Revised: 15 January 2017 / Accepted: 27 February 2017 / Published: 3 March 2017
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Abstract

In the first part of the paper, the positive and negative jumps of NASDAQ daily (log-) returns and three of its stocks are estimated based on the methodology presented by Theodosiadou et al. 2016, where jumps are assumed to be hidden random variables. For that reason, the use of stochastic state space models in discrete time is adopted. The daily return is expressed as the difference between the two-sided jumps under noise inclusion, and the recursive Kalman filter algorithm is used in order to estimate them. Since the estimated jumps have to be non-negative, the associated pdf truncation method, according to the non-negativity constraints, is applied. In order to overcome the resulting underestimation of the empirical time series, a scaling procedure follows the stage of truncation. In the second part of the paper, a nonparametric change point analysis concerning the (variance–) covariance is applied to the NASDAQ return time series, as well as to the estimated bivariate jump time series derived after the scaling procedure and to each jump component separately. A similar change point analysis is applied to the three other stocks of the NASDAQ index. View Full-Text
Keywords: positive-negative return jumps; Kalman filter; pdf truncation; change point detection positive-negative return jumps; Kalman filter; pdf truncation; change point detection
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Theodosiadou, O.; Skaperas, S.; Tsaklidis, G. Change Point Detection and Estimation of the Two-Sided Jumps of Asset Returns Using a Modified Kalman Filter. Risks 2017, 5, 15.

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