Estimation of Jump-Diffusion Processes Via Empirical Characteristic Functions

This article proposes an estimation procedure for the affine stochastic volatility models with jumps both in the asset price and variance processes. The estimation procedure is based on the joint (here bi-variate) unconditional characteristic function for the stochastic process for which we derive a closed form expression. The estimation of the general model and of various restrictions, on Samp;P 500 data, is performed using the continuous empirical characteristic function method. The estimation suggests that besides a stochastic volatility, jumps both in the mean and the volatility equation are relevant