Inference of Binary Regime Models with Jump Discontinuities

10/23/2019

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by   Milan Kumar Das, et al.

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We have developed a statistical technique to test the model assumption of binary regime switching extension of the geometric Lévy process (GLP) by proposing a new discriminating statistics. The statistics is sensitive to the transition kernel of the regime switching model. With this statistics, given a time series data, one can test the hypothesis on the nature of regime switching. Furthermore, we have implemented this statistics for testing the regime switching hypothesis with Indian sectoral indices and have reported the result here. The result shows a clear indication of presence of multiple regimes in the data.