Modeling shocks in long-term equity returns
Ronkainen, Vesa; Alho, Juha (15.03.2009)
Numero
1/2009Julkaisija
Finanssivalvonta
2009
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:bof-201408071727Tiivistelmä
In this paper we develop a model for equity returns that is aimed at long-term forecasting and risk management applications. We first analyse the yearly S&P 500 total return index data and review some common models for equity returns. Subsequently we develop a Gamma Jump Random Walk model for equity returns and estimate it through the Maximum Likelihood and Markov Chain Monte-Carlo methods. In the final section we present simulations of the model. Avainsanat/Nyckelord/Keywords: Equity return shocks, jump random walk, risk management