A note on NIG-Levy process in asset price modeling: case of Estonian companies

Teneng, Dean (2013): A note on NIG-Levy process in asset price modeling: case of Estonian companies.

Abstract

The purpose of this note is three folds. First, we review Levy processes and analyse jumps. Second, we correct mistakes relating to terminology and analysis of results in Teneng [7]. Third, we extend results by showing returns of companies trading on Tallinn Stock Exchange between 01 January 2008 and 01 January 2012 cannot be modeled by NIG distribution; both in cases where closing prices can and cannot be modeled by NIG distribution. Thus, the NIG-Levy process cannot be used to forecast the future prices of these assets.

• Item Type: MPRA Paper
• Language: English
• Keywords: NIG, Levy process, Jumps, forecasting, goodness of fits.
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C10 - General; ; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection

References

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[2] Lo, A. W., and Mackinlay, A. C.: Stock market prices do not follow random walks: Evidence from a simple speci�cation test, Review of Financial studies(1998), Vol 1, 44-66. [3] Schoutens, W.: Levy Processes in Finance, John Wiley and Sons Inc., New York, 2003.

[4] Rasmus, S., Asmussen, S., and Wiktorsson, M.: Pricing of some Exotic Options with NIG-Levy input, Centre for Analytical Finance, Aarhus University, accessed 13 December 2010. http://www.cls.dk/caf/wp/wp{166.pdf

[5] TANKOV, P.: Levy Processes in Finance and risk Management: Presented at the World Congress on Computational Finance,(March 2007) London. Accessed 15 November 2010, http://www.math.jussieu.fr/tankov/wccf paper.pdf

[6] TANKOV, P.: LevyProcesses in Finance: Inverse Problems and Dependence Modelling,(September 2004), Centre de Mathematiques Appliques, accessed 20 January 2010. http://www.math.jussieu.fr/tankov/these tankov.pdf

[7] Teneng, D.: NIG-Levy process in asset price modeling: Case of Estonian companies. In: RAMIK,J and STAVAREK, D. (eds.) Proceedings of the 30th International Conference on Mathematical Methods in Economics. Karvina: Silesian University, School of Business Administration, 2012, pg 891-896. http://mme2012.opf.slu.cz/proceedings/pdf/153 Teneng.pdf