TY  - JOUR
AU  - Calvet,Laurent E.
AU  - Fisher,Adlai J.
TI  - Multifrequency Jump-Diffusions: An Equilibrium Approach
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12797
PY  - 2006
Y2  - December 2006
UR  - http://www.nber.org/papers/w12797
L1  - http://www.nber.org/papers/w12797.pdf
N1  - Author contact info:
Laurent E. Calvet
Department of Finance
HEC Paris
1 rue de la Libération
78351 Jouy en Josas
France
Tel: +33 13 967 9409
Fax: +33 13 967 7085
E-Mail: calvet@hec.fr

Adlai Fisher
Sauder School of Business
University of British Columbia
2053 Main Mall, Vancouver BC, CANADA
V6T 1Z2
Tel: 604 822 8331
Fax: 604 822 4695
E-Mail: adlai.fisher@sauder.ubc.ca
AB  - This paper proposes that equilibrium valuation is a powerful method to generate endogenous jumps in asset prices, which provides a structural alternative to traditional reduced-form specifications with exogenous discontinuities. We specify an economy with continuous consumption and dividend paths, in which endogenous price jumps originate from the market impact of regime-switches in the drifts and volatilities of fundamentals. We parsimoniously incorporate shocks of heterogeneous durations in consumption and dividends while keeping constant the number of parameters. Equilibrium valuation creates an endogenous relation between a shock's persistence and the magnitude of the induced price jump. As the number of frequencies driving fundamentals goes to infinity, the price process converges to a novel stochastic process, which we call a multifractal jump-diffusion.
ER  -