Jumping VaR: Order Statistics Volatility Estimator for Jumps\n Classification and Market Risk Modeling

2018/03/19 by Luca Spadafora, Spadafora, Luca, Francesca Sivero +3
Economics, Econometrics and Finance · Mathematics · #FOS: Economics and business #Financial Risk and Volatility Modeling #Risk Management (q-fin.RM) #Statistical Methods and Inference #Stochastic processes and financial applications

paper · pdf · doi:10.48550/arxiv.1803.07021

openalex publication_date 2018/03/19 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28

Abstract

This paper proposes a new integrated variance estimator based on order\nstatistics within the framework of jump-diffusion models. Its ability to\ndisentangle the integrated variance from the total process quadratic variation\nis confirmed by both simulated and empirical tests. For practical purposes, we\nintroduce an iterative algorithm to estimate the time-varying volatility and\nthe occurred jumps of log-return time series. Such estimates enable the\ndefinition of a new market risk model for the Value at Risk forecasting. We\nshow empirically that this procedure outperforms the standard historical\nsimulation method applying standard back-testing approach.\n

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