Papers › Jumping VaR: Order Statistics Volatility Estimator for Jumps Classification and Market...

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

22 Mar 2018arXiv:1803.07021archive 2025-07-28

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

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