Title: No-arbitrage semi-martingale restrictions for continuous-time volatility models subject to leverage effects, jumps and i.i.d. noise
Description: "We develop a sequential procedure to test the adequacy of jump-diffusion models for return distributions.  We rely on intraday data and nonparametric volatility measures, along with a new jump detection technique and appropriate conditional moment tests, for assessing the import of jumps and leverage effects.  A novel robust-to-jumps approach is utilized to alleviate microstructure frictions for realized volatility estimation.  Size and power of the procedure are explored through Monte Carlo methods.  Our empirical findings support the jump-diffusive representation for S&P500 futures returns but reveal it is critical to account for leverage effects and jumps to maintain the underlying semi-martingale assumption"--National Bureau of Economic Research web site.
Subjects: Economic forecasting