Affiliation:
1. Department of Mathematics and Computer Science University of Perugia Perugia Italy
2. Department of Economics University of Perugia Perugia Italy
3. Department of Economics and Finance University of Rome Tor Vergata Rome Italy
Abstract
SummaryWith the availability of social networks, specialized forums, and online news, sentiment analysis has become a common and useful technique for the analysis of economic and financial scenarios. Several data‐providers have also started computing proprietary sentiment indexes on financial assets to be delivered together with market price and trading volume. We develop a modified version of the mean‐reverting 4/2 stochastic volatility model introduced in Escobar‐Anel & Gong (2020) to describe the dynamics of commodities. In our specification, jumps are allowed in the asset price dynamics, and the drift coefficient may also switch between regimes related to a sentiment indicator. In this framework, we discuss the distributional characteristics of asset returns, provide a numerical procedure for model estimation, and give some preliminary results on the pricing of European‐style derivatives. Finally, the model is fitted to the market data for Gold and Crude Oil.
Funder
Università degli Studi di Perugia
Subject
Management Science and Operations Research,General Business, Management and Accounting,Modeling and Simulation
Cited by
1 articles.
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