2007 Book Springer PDF

Springer Finance
Editorial Board
M. Avellaneda
G. Barone-Adesi
M. Broadie
M.H.A. Davis
E. Derman
C. Klüppelberg
E. Kopp
W. Schachermayer
Springer Finance
Springer Finance is a programme of books aimed at students,

academics and practitioners working on increasingly technical
approaches to the analysis of financial markets. It aims to cover a
variety of topics, not only mathematical finance but foreign
exchanges, term structure, risk management, portfolio theory,
equity derivatives, and financial economics.
Ammann M., Credit Risk Valuation: Methods, Models, and Application (2001)
Back K., A Course in Derivative Securities: Introduction to Theory and Computation
(2005)
Barucci E., Financial Markets Theory. Equilibrium, Efficiency and Information (2003)
Bielecki T.R. and Rutkowski M., Credit Risk: Modeling, Valuation and Hedging (2002)
Bingham N.H. and Kiesel R., Risk-Neutral Valuation: Pricing and Hedging of Financial
Derivatives (1998, 2nd ed. 2004)
Brigo D. and Mercurio F., Interest Rate Models: Theory and Practice
(2001, 2nd ed. 2006)
Buff R., Uncertain Volatility Models-Theory and Application (2002)
Carmona R.A. and Tehranchi M.R., Interest Rate Models: an Infinite Dimensional
Stochastic Analysis Perspective (2006)
Dana R.A. and Jeanblanc M., Financial Markets in Continuous Time (2002)
Deboeck G. and Kohonen T. (Editors), Visual Explorations in Finance with
Self-Organizing Maps (1998)
Delbaen F. and Schachermayer W., The Mathematics of Arbitrage (2005)
Elliott R.J. and Kopp P.E., Mathematics of Financial Markets (1999, 2nd ed. 2005)
Fengler M.R., Semiparametric Modeling of Implied Volatility (2005)
Geman H., Madan D., Pliska S.R. and Vorst T. (Editors), Mathematical
Finance–Bachelier Congress 2000 (2001)
Gundlach M., Lehrbass F. (Editors), CreditRisk+ in the Banking Industry (2004)
Kellerhals B.P., Asset Pricing (2004)
Külpmann M., Irrational Exuberance Reconsidered (2004)
Kwok Y.-K., Mathematical Models of Financial Derivatives (1998)
Malliavin P. and Thalmaier A., Stochastic Calculus of Variations in Mathematical
Finance (2005)
Meucci A., Risk and Asset Allocation (2005)
Pelsser A., Efficient Methods for Valuing Interest Rate Derivatives (2000)
Prigent J.-L., Weak Convergence of Financial Markets (2003)
Schmid B., Credit Risk Pricing Models (2004)
Shreve S.E., Stochastic Calculus for Finance I (2004)
Shreve S.E., Stochastic Calculus for Finance II (2004)
Yor M., Exponential Functionals of Brownian Motion and Related Processes (2001)
Zagst R., Interest-Rate Management (2002)
Zhu Y.-L., Wu X., Chern I.-L., Derivative Securities and Difference Methods (2004)
Ziegler A., Incomplete Information and Heterogeneous Beliefs in Continuous-time
Finance (2003)
Ziegler A., A Game Theory Analysis of Options (2004)
Eric Jondeau, Ser-Huang Poon
and Michael Rockinger
Financial Modeling Under

Non-Gaussian Distributions
Eric Jondeau Ser-Huang Poon
University of Lausanne and Swiss Manchester Business School
Finance Institute University of Manchester
HEC-Department of Finance and Oxford Road
Insurance Manchester M13 9PL
CH-1015 Lausanne-Dorigny UK
Switzerland
Michael Rockinger
University of Lausanne and Swiss
Finance Institute
HEC-Department of Finance and
Insurance
CH-1015 Lausanne-Dorigny
Switzerland
Mathematics Subject Classification (2000): 91B28, 91B84
British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library
Library of Congress Control Number: 2006923899
Springer Finance Series ISSN 1616-0533

ISBN-10 1-84628-419-8 Printed on acid-free paper
ISBN-13 978-1-84628-419-9
© 2007 Springer-Verlag London Limited

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SP500 DAX
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1980 1985 1990 1995 2000 2005 1980 1985 1990 1995 2000 2005
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1980 1985 1990 1995 2000 2005 1980 1985 1990 1995 2000 2005
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2000 3000
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0.4
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0.2
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20
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t(5)
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t(2)
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0.25
0.2
0.15
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#.$ ?_?=N CM CHNLI>O=?> "IL CHMN;H=?
@IL NB? /,
NB? DOGJ MCT? ?PIFP?M
@LIG '
I<N;CH?> @IL NB? GI>?F QCNBION #.$ HIL NCG? P;LC;NCIH
CH NB? DOGJ CHN?HMCNS
NI ' @IL NB? A?H?L;F GI>?F +OL CHN?LJL?N;
NCIH CM NB;N QCNBION NB? #.$ >SH;GC=M
NB? DOGJ =IGJIH?HN CM @IL=?> NI
=;JNOL? G;HS I@ NB? P;LC;NCIHM >O? NI NB? NCG?P;LSCHA PIF;NCFCNS ;H> NB?L?
@IL? >I?M HIN H?=?MM;LS =ILL?MJIH> NI ;=NO;F DOGJM F?;LFS
;M NB? DOGJ MCT?
<?=IG?M F;LA?L
NB? CHN?HMCNS I@ NB? DOGJM >CGCHCMB?M 3? HINC=? @IL CHMN;H=?
@IL NB? /, NB;N ' @IL NB? MCGJF? GI>?F ;H> 1N ' @IL NB?
A?H?L;F GI>?F 0BCM G?;HM NB;N
@IL NB? A?H?L;F GI>?F
; DOGJ N;E?M JF;=?
;<ION ?P?LS W@NB >;S
3B?H Q? @I=OM IH NB? >SH;GC=M I@ NB? DOGJ CHN?HMCNS
Q? HINC=? <S CHMJ?=N
CHA NB? J;L;G?N?L NB;N NB?L? CM CGJILN;HN J?LMCMN?H=? CH NB? J;L;G?N?L
CGJFSCHA ; L;NB?L MGIINB ?PIFONCIH I@ NBCM J;L;G?N?L NBLIOAB NCG? %@ Q?
=IHMC>?L NB? FIAFCE?FCBII>M I@ NB? L?MNLC=N?> ;H> A?H?L;F GI>?FM
Q? HINC=?
)I>?FCHA 2IF;NCFCNS
&*+5. $.?.:2A2?@ 3<? . & :<129 0<:/6;21 D6A5 . 7B:= =?<02@@ D6A5
A6:2C.?F6;4 6;A2;@6AF .;1 . ?2@A?60A21 :<129 D6A5<BA A6:2C.?F6;4 C<9.A696AF ;<?
A6:2C.?F6;4 7B:= 6;A2;@6AF
/, 4 /, 4

L

FIAFCE

&&

; MN;NCMNC=;FFS MCAHCW=;HN =B;HA? ;M Q? CHNLI>O=? DOGJM NI ; MCGJF? #.$

GI>?F ;H> ; @OLNB?L MN;NCMNC=;FFS MCAHCW=;HN =B;HA? ;M Q? CHNLI>O=? NCG? P;LC
;NCIH CH NB? DOGJ CHN?HMCNS
%N CM ;FMI JIMMC<F? NI ?MNCG;N? NB? N?GJIL;F ?PIFONCIH I@ NB? JLI<;<CFCNS
NB;N ; DOGJ NIIE JF;=? IP?L ; ACP?H >;S
M?? 0B? ?PIFONCIH I@ NB? DOGJ
JLI<;<CFCNS @IL NB? /, IP?L NB? J?LCI> MN;LNCHA QCNB NB? <?ACHHCHA
;H> ?H>CHA QCNB NB? S?;L CM JLIPC>?> CH "CAOL? M Q? =IOF> ?RJ?=N
@LIG NB? L?F;NCP?FS BCAB J;L;G?N?L ;H> NB? ?HMOCHA MGIINBH?MM I@ N ( NB?
DOGJ JLI<;<CFCNS ?PIFP?M L?F;NCP?FS MGIINBFS IP?L NCG? )IL?IP?L
NB? J?LCI>
CH NB? GC>>F? I@ L?F;N?> NI NB? Q;L CH %L;K ;FMI =ILL?MJIH>M NI ; J?LCI>
I@ CH=L?;M?> DOGJ JLI<;<CFCNC?M (;MN
Q? =;H =IHMC>?L NB? N?GJIL;F ?PIFONCIH
CGJFC?> <S NBCM GI>?F @IL ME?QH?MM ;H> EOLNIMCM 0BCM CM ACP?H CH "CAOL?

3? =IOF> B;P? =BIM?H ; GO=B F;LA?L QCH>IQ
BIQ?P?L
NB? JC=NOL? <?=IG?M P?LS
?LL;NC= C@ Q? =IHMC>?L NII G;HS I<M?LP;NCIHM
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
1999 1999.5 2000 2000.5 2001 2001.5 2002 2002.5 2003
20 @A6:.A6<; <3 A52 7B:= =?</./696AF "C&

*& 3<? A52 '$
Conditional s kew nes s

0
-0.2
-0.4
-0.6
-0.8
-1
1980 1985 1990 1995 2000 2005
Conditional kurtos is
8
3
1980 1985 1990 1995 2000 2005
20 C<9BA6<; <3 A52 0<;16A6<;.9 @82D;2@@ .;1 8B?A<@6@ 3<? A52 '$

)I>?FCHA 2IF;NCFCNS
M NB?M? WAOL?M MBIQ

NB? BCAB?L GIG?HNM I@ NB? >;N; ;L? @IOH> NI ?PIFP?
IP?L NCG? "IL NB? +=NI<?L =L;MB
Q? HINC=? MIG? FCGCN;NCIHM I@ NBCM
GI>?F %H>??>
NB? ME?QH?MM J;L;G?N?L <?=IG?M P?LS MG;FF
=FIM? NI
;H>
EOLNIMCM ;JJLI;=B?M
NB? P;FO? ; #;OMMC;H >CMNLC<ONCIH QIOF> N;E? 0BCM
WH>CHA =IG?M @LIG NB? @;=N NB;N NB? =L;MB CH>O=?> ; BOA? OJQ;L> DOGJ CH
PIF;NCFCNS 0BCM CH=L?;M? CH PIF;NCFCNS
=;JNOL?> <S NB? #.$ GI>?F
;<MIL<M
;FF NB? L?NOLH P;LC;NCIHM NB;N GCABN INB?LQCM? <? DO>A?> ;M ; DOGJ 0BCM CM
L?F;N?> NI ;H IF> >?<;N? I@ NB? ?GJCLC=;F WH;H=? FCN?L;NOL? H;G?FS C@ Q? MBIOF>
CH=FO>? IL HIN NB? =L;MB CH NB? GI>?F /IG? JOH>CNM =F;CG NB;N ;HS
M;NCM@;=NILS GI>?F MBIOF> <? ;<F? NI >?M=LC<? NBCM IONFC?L +NB?LM ;L? QCFFCHA
NI >CM=;L> NBIM? @?Q I<M?LP;NCIHM MOLLIOH>CHA NB? =L;MB IH NB? ALIOH>
NB;N NB? P;LC;NCIH I@ NB;N >;S =;HHIN <? ?H=IGJ;MM?> CH ; A?H?L;F @L;G?QILE
3CNB NB? GI>?F ;N B;H>
NB? N J;L;G?N?L N;E?M NB? P;FO? I@
MOAA?MNCHA
NB;N IH NB;N >;S
=L;MB?M NIIE JF;=? %@ NBCM CM ; JIMMC<CFCNS L?G;CHM ;H IJ?H
KO?MNCIH 3? ;FMI HINC=? NB;N NB? L;HA? I@ P;LC;NCIH I@ NB?M? NQI GIG?HNM CM
L;NB?L F;LA? 0B? =IH>CNCIH;F ME?QH?MM N?H>M NI <? F?MM H?A;NCP? IP?L NB? L?=?HN
J?LCI>
QBCF? EOLNIMCM N?H>M NI <? =FIM?L NI
MOAA?MNCHA NB;N NB? >CMNLC<ONCIH
I@ NB? /, B;M <??H L?=?HNFS =FIM?L NI NB? HILG;F >CMNLC<ONCIH 0B? NCG?
P;LC;NCIH I@ MO=B GIG?HNM CM CGJILN;HN @IL JILN@IFCI ;FFI=;NCIH ;H> QCFF ;FMI
<? =IHMC>?L?> CH B;JN?L
00;.0*=287 8/ $ 9;8,.<<.?M=LCJNCIH I@ NB? N?GJIL;F ?PIFONCIH I@ L?NOLH
M?LC?M
;H> CH J;LNC=OF;L CNM NCG?P;LSCHA PIF;NCFCNS
G;S <? L?F;NCP?FS Q?FF =;J
NOL?> <S #.$ JLI=?MM?M N NBCM MN;A?
H?Q KO?MNCIHM ;LCM? 0B? WLMN IH?
=IH=?LHM NB? ?PIFONCIH I@ NB? J;L;G?N?LM I@ #.$ JLI=?MM?M
;M Q? OM? >C@
@?L?HN NCG? @L?KO?H=C?M @IL NB? ?MNCG;NCIH "IL CHMN;H=?
Q? G;S <? N?GJN?> NI
OM? >;CFS >;N; NI ?MNCG;N? ; JLI=?MM NB;N MBIOF>
BIQ?P?L
<? M=;F?> NI MIG?
INB?L @L?KO?H=S
M;S ; GIHNBFS IH? 0B? ;HMQ?L CM NB;N NB? #.$ JLI=?MM
MNO>C?> MI @;L
>I?M HIN ;AAL?A;N?
; L?MOFN MBIQH CH ;H CGJILN;HN J;J?L <S
LIMN ;H> *CDG;H 0B?M? ;ONBILM CHNLI>O=? ; H?Q =F;MM I@ JLI=?MM?M
NB;N NB?S H;G? Q?;E #.$ GI>?F

NB;N ;AAL?A;N?
BIQ?P?L
0B? M?=IH> KO?MNCIH =IH=?LHM NB? =LIMMM?=NCIH ;AAL?A;NCIH
C?
QB;N QCFF
<? NB? L?MOFNCHA JLI=?MM @IL ; JILN@IFCI I@ ;MM?NM
C@ ?;=B ;MM?N B;M #.$ NSJ?
L?NOLHM 0B? ;HMQ?L CM ;A;CH >CM;JJICHNCHA M MBIQH <S *CDG;H ;H> /?HN;H;

; FCH?;L =IG<CH;NCIH I@ ;MM?NM
?;=B QCNB ; #.$ >SH;GC=M
QCFF HI
FIHA?L <? >CMNLC<ON?> ;M ; #.$ GI>?F CH NB? OMO;F M?HM?
%H NBCM M?=NCIH
Q? >CM=OMM NB? G;CH L?MOFNM
L?F?P;HN @IL NB? N?GJIL;F ;M
Q?FF ;M NB? =LIMMM?=NCIH;F ;AAL?A;NCIH I@ #.$ JLI=?MM?M
&.698;*5 *00;.0*=287
&1.8;.=2,*5 *<9.,=<
LIMN ;H> *CDG;H JLIP? NB;N NB? #.$ JLI=?MM

I@ NB? NSJ? =IHMC>
?L?> MI @;L
G;S HIN ;AAL?A;N? CH ; MCGJF? Q;S "IL NBCM L?;MIH
NB?S CHNLI
>O=? >C_?L?HN =;N?AILC?M I@ #.$ JLI=?MM?M 0B? #.$ GI>?FM MNO>C?>
MI @;L QCFF <?FIHA NI NB? =F;MM I@ MNLIHA #.$ JLI=?MM?M N NB? INB?L ?R
NL?G?
LIMN ;H> *CDG;H
;Q;L? I@ NB? N?GJIL;F ;AAL?A;NCIH L?MOFNM
I@ *CDG;H ;H> ,;FG
L?;FCT?> NB;N JLID?=NCIHM I@ MKO;L?> L?NOLHM IH
.) JLI=?MM?M QIOF> F?;> NI ;AAL?A;NCIH L?MOFNM "IL NBCM L?;MIH
NB?S CH
NLI>O=?> MI=;FF?> Q?;E #.$ JLI=?MM?M NB;N ;L? FCH?;L JLID?=NCIHM 0B?
@IFFIQCHA >?WHCNCIHM ACP? ; GIL? JL?=CM? M?HM?
.D72=287 'A?<;4 & ?<@A .;1 "67:.; (52 @2?62@ #N (

D6A5 [ .;1 #N N aN D52?2 N ^ # N N 6@ . @A?<;4 &
=?<02@@ 63 3<? @<:2 =.?.:2A2?@ " ( .;1 A52 6;;<C.A6<; aN 6@ 661 D6A5 G2?<
:2.; .;1 B;6A C.?6.;02
.D72=287
'2:6@A?<;4 & (52 @2?62@ #N ( D6A5 [ 6@ . @2:6
@A?<;4 & =?<02@@ 63 " ( .;1 :.F /2 05<@2; @< A5.A
1#N )#N ( #N ( ( .;1

1# N )#N ( #N ( N (
D6A5 N 12H;21 .@ 3<? A52 @A?<;4 & =?<02@@
?WH? HIQ NB? FCH?;L JLID?=NCIH IJ?L;NIL , ;M NB? <?MN FCH?;L JL?>C=NIL
I@ MIG? L;H>IG P;LC;<F? ACP?H NB? CH@ILG;NCIH MNLO=NOL? "ILG;FFS
Q? >?WH?
,_N )#N ( #N ( NB? <?MN FCH?;L JL?>C=NIL I@ _N CH N?LGM I@ ( #N ( #N (
# N
# N (
' 0B?H NB? @IFFIQCHA >?WHCNCIH G;S <? CHNLI>O=?>
.D72=287 +2.8 & (52 @2>B2;02 #N ( D6A5 [ 6@ . D2.8

& =?<02@@ 63 " ( .;1 :.F /2 05<@2; @< A5.A
< #N )#N ( #N ( (

< # N )#N ( #N ( N (
D6A5 N 12H;21 .@ 3<? A52 @A?<;4 & =?<02@@
N NBCM MN;A?
LIMN ;H> *CDG;H ;MMOG? NB;N NB?S I<M?LP? ; M;GJF?
4
'#N (N I@ MIG? ;MM?N L?NOLHM %@ <N >?HIN?M NB? P;FO? I@ ; ACP?H ;MM?N
NB?H NB?
=IHNCHOIOMFS =IGJIOH>?> L?NOLH ;N NCG? [ CM >?WH?> ;M #N &)# <N *<N

0BCM L?NOLH CM ;MMOG?> NI <? M;GJF?> ;N
M;S
NB? >;CFS @L?KO?H=S 0B? KO?M
NCIH CM QB;N J;L;G?N?LM G;S <? I<N;CH?> C@ Q? B;> M;GJF?> ;N ; >C_?L?HN

FN?LH;NCP?FS
Q? G;S M;S NB;N NB? =F;MM I@ #.$ JLI=?MM?M CM HIN =FIM?> OH>?L
;AAL?A;NCIH QB?L? NB? HINCIH I@ =FIM?>H?MM CM N;E?H CH NB? G;NB?G;NC=;F M?HM?
)I>?FCHA 2IF;NCFCNS
@L?KO?H=S MO=B ;M Q??EFS "IL CHMN;H=?

Q? G;S =IHMC>?L L?NOLHM IP?L ; FIQ?L
@L?KO?H=S =IHMCMNCHA I@ NB? CHMN;HNM T
T

@( QB?L? T CM ;H CHN?A?L ;H>
@ CM ;MMOG?> NI <? ; GOFNCJF? I@ T LIMN ;H> *CDG;H CHNLI>O=? NB?
HIN;NCIH
H
,
<N
#HN #ND &)# ( @IL [ T( T( ( @'
D
<NH
0BOM
#HN L?JL?M?HNM NB? L?NOLH IP?L ; FIHA?L J?LCI> NB;H NB? CHCNC;F L?NOLHM
M?LC?M 0B? G;CH L?MOFN I@ NB?CL J;J?L CM ACP?H <S NB? @IFFIQCHA JLIJIMCNCIH
";898<2=287 ?<@A .;1 "67:.; 3 A52 @2>B2;02 #N ( [ ( 6@ .
D2.8
& (
=?<02@@ D6A5 @F::2A?60 :.?46;.9 16@A?6/BA6<;@ N " # N
N ( .;1 B;0<;16A6<;.9 8B?A<@6@ A52; #HNH ( [ ( 6@ . @F::2A?60 D2.8
& (
=?<02@@ D6A5
HNH ^H H # HNHH H HNHH (
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^H T" (

H
H H (
H
*T
T T

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(
T

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H -
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D52?2

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T T

T T

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LIMN ;H> *CDG;H CHNLI>O=? ; >CMNCH=NCIH <?NQ??H XIQ ;H> MNI=E P;LC;<F?M
"IL WH;H=? ;JJFC=;NCIHM
CHPIFPCHA ;MM?N L?NOLHM
NB? ;AAL?A;NCIH I@ XIQM CM I@
L?F?P;H=?
#CP?H NB;N NBCM JLIJIMCNCIH L?KOCL?M NB? EOLNIMCM I@ NB? ILCACH;F ?LLIL
(
@IL ?GJCLC=;F ;JJFC=;NCIHM NB? @IFFIQCHA L?GCH>?L <S LIMN ;H> *CDG;H
G;S <? OM?@OF

T (

T

QB?L? aN >?HIN?M NB? MN;H>;L>CT?> CHHIP;NCIH 0BOM
C@ Q? ?MNCG;N? NB? EOLNIMCM
I@ NB? CHHIP;NCIHM aN ( ;@N?L B;PCHA WNN?> NB? #.$ GI>?F
Q? G;S CH@?L
IH=? ;H> B;P? <??H ?MNCG;N?> %HMJ?=NCIH I@ NB? @ILGOF; @IL EOLNIMCM
L?P?;FM NB;N ;M NB? ;AAL?A;NCIH MN?J T CH=L?;M?M
H =IHP?LA?M NI 0BOM
N?GJIL;F ;AAL?A;NCIH QCFF L?H>?L NB? >;N; GIL? HILG;F 3? G;S CHNOCNCP?FS
PC?Q NBCM L?MOFN ;M L?MOFNCHA @LIG NB? MGIINBCHA I@ I<M?LP;NCIHM ;M Q? MOG
NB? CHHIP;NCIHM $?N?LIME?>;MNC=CNS QCFF A?N MGIINB?> 0BCM L?MOFN B;M <??H
HINC=?> ;FL?;>S <S C?<IF> ;H> B;M <??H P?LCW?> CH B;JN?L
7 .692;2,*5 255><=;*=287
0I CFFOMNL;N? BIQ N?GJIL;F ;AAL?A;NCIH =B;HA?M NB? J;L;G?N?LM

Q? =IHMC>?L
; MCNO;NCIH QB?L? (
' ( '
;H> (
'( '
;M Q?FF ;M NB?
=;M?M QB?L? NB? EOLNIMCM ?KO;FM T ( =ILL?MJIH>CHA NI NB? #;OMMC;H =;M?
;H> T '( =ILL?MJIH>CHA NI NB? =;M? QB?L? CHHIP;NCIHM ;L? >CMNLC<ON?>

;M ; /NO>?HN [ QCNB >?AL??M I@ @L??>IG M CH LIMN ;H> *CDG;H
Q? =IHMC>?L P;LCIOM P;FO?M I@ T (

0B? =ILL?MJIH>CHA
P;FO?M I@ H
H QCFF <? L?JL?M?HN?> CH "CAOL? <S MSG<IFM
DICH?> @IL
AL;JBC=;F =IHP?HC?H=? <S FCH?M 0B? =;M? (
' ( '
=ILL?MJIH>M NI NB?
OJJ?L =OLP?M L?JL?M?HN?> <S =IHNCHOIOM FCH?M 0B? =;M? (
'( '
CM L?JL?M?HN?> <S NB? >;MB?> FIQ?L M?N I@ =OLP?M

GIHA ?;=B =OLP?
MKO;L?M =ILL?MJIH> NI NBIM? J;CLM I@ NB? ;H> J;L;
G?N?LM A?H?L;N?> OH>?L ; #;OMMC;H M=?H;LCI OFF?NM ;L? I<N;CH?> OH>?L NB?
;MMOGJNCIH NB;N NB? CHHIP;NCIHM @IFFIQ ; /NO>?HN [ QCNB >?AL??M I@ @L??>IG
3?
NBOM
I<M?LP? NB;N NB? >CMNLC<ONCIH ;H> @;NN;CF?>H?MM I@ NB? CHHIP;NCIHM
;_?=NM NB? JLIJ?LNC?M I@ ;AAL?A;NCIH ?J?H>CHA IH NB? J;L;G?N?LM ;H>
;M Q?FF ;M IH NB? EOLNIMCM
P;LCIOM J;NN?LHM BIQ NB? J;L;G?N?LM ?PIFP? ;M T
CH=L?;M?M ;L? JIMMC<F? %HN?L?MNCHAFS
NB?L?@IL?
NB? EOLNIMCM I@ NB? CHHIP;NCIH aN
;_?=NM NB? N?GJIL;F ;AAL?A;NCIH JLIJ?LNC?M I@ NB? J;L;G?N?LM %H INB?L QIL>M
CH JL;=NC=;F ;JJFC=;NCIHM
C@ NB? EOLNIMCM CM HIN EHIQH
CN CM HIN JIMMC<F? NI
=ILL?=NFS CH@?L BIQ NB? J;L;G?N?LM QCFF ;AAL?A;N?
3? G;S ;FMI ;ME BIQ ;AAL?A;N?> J;L;G?N?LM =IGJ;L? QCNB NBIM? I<N;CH?>
@IL ; #.$ GI>?F ?MNCG;N?> IH ;AAL?A;N?> >;N; 0I ;HMQ?L NBCM KO?MNCIH
Q? ?MNCG;N? ; MSGG?NLC= #.$ (

GI>?F NI NB? /, L?NOLHM M;GJF?>
;N NB? >;CFS ;H> Q??EFS @L?KO?H=C?M ;MMOGCHA HILG;FCNS I@ CHHIP;NCIHM 0B?
M;GJFCHA ;N Q??EFS @L?KO?H=S =ILL?MJIH>M NI T ' 0B? L?MOFNM ;L? L?JL?
M?HN?> CH 0;<F? 0B? N;<F? MOGG;LCT?M NB? L?MOFNM I<N;CH?> 3? HINC=? NB;N
NB? EOLNIMCM I@ CHHIP;NCIHM CM P?LS BCAB CH <INB =;M?M M Q? MQCN=B @L?KO?H=S
NB? J;L;G?N?LM ?PIFP? CH NB? LCABN >CL?=NCIH

)I>?FCHA 2IF;NCFCNS
0.16
0.14
0.12
0.1
0.08
α
α=0.1,β=0.85
0.06
α=0.05,β=0.94
0.04
0.02
0
0 0.2 0.4 0.6 0.8 1
β
20 C<9BA6<; <3 A52 =.?.:2A2?@ <3 . D2.8 & :<129 B;12? A2:=<?.9
.44?24.A6<; (52 @F:/<9@ 0<??2@=<;1 3?<: ?645A A< 923A A< @.:=96;4 2C2?F
</@2?C.A6<;@ B?C2@ D6A5 @>B.?2@ 0<??2@=<;1 A< .B@@6.; 6;;<C.A6<;@
.;1 /B992A@ A< 'AB12;A I 16@A?6/BA21 6;;<C.A6<;@
&*+5. & =.?.:2A2?@ 3<? A52 '$
.A /<A5 D2289F .;1 1.69F 3?2>B2;062@

,;L;G?N?L !MNCG;N? /N> ?LLIL
3??EFS @L?KO?H=S

'OLNIMCM
)

;CFS @L?KO?H=S
L

'OLNIMCM
)

0I CHP?MNCA;N? BIQ =ILL?=N NBCM MQCN=B CM

Q? NL;=? CH "CAOL? NB? J;
L;G?N?LM H ;H> H I<N;CH?> OH>?L N?GJIL;F ;AAL?A;NCIH QB?H Q? MN;LN
QCNB BCAB?L @L?KO?H=S >;N; B?L? >;CFS (
'( '
0B? =OLP?
QCNB NB? MN;LM L?JL?M?HNM ; =OLP? =ILL?MJIH>CHA NI ;AAL?A;N?> J;L;G?N?LM @IL
NB? M;G? M?KO?H=? I@ T ;M ;<IP? 0B? J;L;G?N?LM I<N;CH?> @IL NB? #.$
GI>?F
?MNCG;N?> ;N Q??EFS @L?KO?H=S
;L? L?JL?M?HN?> <S NB? MCHAF? F;LA? >C
;GIH> CH NB? OJJ?L J;LN I@ NB? WAOL? M Q? =;H M??
NB?L? CM ; MCAHCW=;HN
0.2
0.18 Param eters for m =5 s am pled data →
0.16
m =5
0.14 Param eters under agregation
α
0.12
0.1
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50 100 150 200 250 300
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39
38
37
36
35
34
33
0 50 100 150 200 250 300
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18
16
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12
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Dif f erence between realized v ariance and realized bipower v ariation

0.7
0.6
0.5
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0.45
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0.15
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0 50 100 150 200 250 300 350 400 450 500
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Uniform distribution U(0,1) Student t distribution with ν=3

6 6
5 5
4 4
Theoretical quantile
3 3
2 2
1 1
0 0
-1 -1
-2 -2
0.85 0.9 0.95 1 0 5 10 15
Empirical quantile Empirical quantile
20 %B.;A692 =9<A 3<? AD< @.:=92@ <3 @6:B9.A21 1.A.
Absolute minima Maxima

6 6
5 5
4 4
3 3
2 2
1 1
0 0
-1 -1
-2 -2
0 5 10 15 20 0 5 10 15
Empirical quantile Empirical quantile
20 %B.;A692 =9<A 3<? '$
1.69F ?2AB?;@
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0.9
ξ = 1.5
ξ = 0.25
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0.7
0.6
0.5
0.4
0.3
0.2
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0 1 2 3 4 5 6 7
20 $13 <3 A52 4=1 3<? C.?6<B@ C.9B2@ <3
(Absolute) smallest returns Largest returns

250 250
200 200
150 150
100 100
50 50
0 0
-10 -5 0 0 5 10
20 6@A<4?.: <3 A52 9<D2? .;1 B==2? A.69@ <3 '$
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1.15 1.15
1.1 1.1
1.05 1.05
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0.95 0.95
0.9 0.9
0.85 0.85
0.8 0.8
0.75 0.75
0.7 0.7
0.65 0.65
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NB? 2;. QCNB JLI<;<CFCNS CM >?WH?> ;M NB? KO;HNCF? I@ NB? MO<M;G
JF? 0BCM CM NB?L?@IL? NB? :
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CM HIN ;H CHN?A?L
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CN CM ;<F? NI =;JNOL? GIMN I@
NB? ?GJCLC=;F @?;NOL?M I@ NBCM M?LC?M
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NB? =BIC=? I@ NB? QCH>IQ MCT? : CM =LO=C;F CH JL;=NC=? (IHA?L M;GJF?M CH=L?;M?
NB? ;==OL;=S I@ 2;. ?MNCG;N?M
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J;LNC=OF;L
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Q? G;S
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0B? JLI<F?G QCNB NB? BCMNILC=;F MCGOF;NCIH ;JJLI;=B MN?GM @LIG NB? @;=N NB;N
L?NOLHM ;L? HIN 661 ;H> @LIG NB? >CM=L?N?H?MM I@ NB? N;CFM I@ NB? ?GJCLC=;F
>CMNLC<ONCIH 0B? NQI M?GCJ;L;G?NLC= ;JJLI;=B?M JL?M?HN?> HIQ JON MIG?
MNLO=NOL? IH NB? N;CFM I@ NB? >CMNLC<ONCIH <S OMCHA J;L;G?NLC= GI>?FM <ON
QCNBION ?MNCG;NCHA NB? =IGJF?N? >CMNLC<ONCIH I@ L?NOLHM 0I MIG? ?RN?HN
NB?S
;L? ;FMI ;<F? NI =IJ? QCNB NB? N?GJIL;F >?J?H>?H=? I@ L?NOLHM 0B? WLMN IH? CM
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3.5
1% VaR
5% VaR
3
2.5
1.5
0.5
1980 1985 1990 1995 2000 2005
20 *.& <3 =<?A3<96< 0<:=BA21 D6A5 A52 56@A<?60.9 @6:B9.A6<; .==?<.05
5
1% ES
4.5 5% ES
3.5
2.5
1.5
0.5
1980 1985 1990 1995 2000 2005
20
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0.02
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*<9.A696AF @:692 3<? =?69
0.32
0.3
0.28
0.26
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0.22
0.2
0.18
0.16
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IL?G CM DOMN MO=B ; @ILGOF; );HS GI>?LH IJNCIH JLC=CHA GI>?FM
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Density out of FFT
Corrected density
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0.4
0.3
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2007 Book Springer PDF

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2007 Book Springer PDF

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Springer Finance

Springer Finance is a programme of books aimed at students,

Financial Modeling Under

Mathematics Subject Classification (2000): 91B28, 91B84

British Library Cataloguing in Publication Data

Library of Congress Control Number: 2006923899

Springer Finance Series ISSN 1616-0533

© 2007 Springer-Verlag London Limited

Printed in the United States of America (MVY)

Springer Science+Business Media, LLC

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