Volatility Jumps, Journal of Business and Economic Statistics
The paper undertakes a non-parametric analysis of the high frequency movements in stock market volatility using very finely sampled data on the VIX volatility index compiled from options data by the CBOE. We derive theoretically the link between pathwise properties of the latent spot volatility and the VIX index, such as presence of continuous martingale and/or jumps, and further show how to make statistical inference about them from the observed data. Our empirical results suggest that volatility is a pure jump process with jumps of infinite variation and activity close to that of a continuous martingale. Additional empirical work shows that jumps in volatility and price level in most cases occur together, are strongly dependent, and have opposite sign. The latter suggests that jumps are an important channel for generating leverage effect.
Viktor Todorov, George Tauchen
Todorov, Viktor, and George Tauchen. 2011. Volatility Jumps. Journal of Business and Economic Statistics. 29(3): 356-371.