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Estimation and filtering by reversible jump MCMC for a doubly stochastic Poisson model for ultra-high-frequency financial data

Department of Economics, Finance and Statistics, University of Perugia, Perugia, Italy

M Minozzo

Department of Economics, Finance and Statistics, University of Perugia, Perugia, Italy, minozzo{at}stat.unipg.it

We propose a modeling framework for ultra-high-frequency data on financial asset price movements. The models proposed belong to the class of the doubly stochastic Poisson processes with marks and allow an interpretation of the changes in price volatility and trading activity in terms of news or information arrival. Assuming that the intensity process underlying event arrivals is unobserved by market agents, we propose a signal extraction (filtering) method based on the reversible jump Markov chain Monte Carlo algorithm. Moreover, given a realization of the price process, inference on the parameters can be performed by appealing to stochastic versions of the expectation-maximization algorithm. The simulation methods proposed will be applied to the computation of hedging strategies and derivative prices.

Key Words: intraday data • marked point processes • news arrival • option pricing • stochastic EM algorithm

Statistical Modelling, Vol. 6, No. 2, 97-118 (2006)
DOI: 10.1191/1471082X06st112oa


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