Jump-Diffusion Stochastic Volatility Model for Estimating the Returns of GBP/CNY Exchange Rates

In this paper we discuss the volatility of daily returns of GBP/CNY exchange rates, find there exists a leptokurtic feature (higher peak and fat tail) that results from some occasional jumps. So, we introduce the jump-diffusion stochastic volatility model to describe the time series of daily returns, and give the parameter estimations by MLE (maximum likelihood estimation) method. Through the empirical analysis, we compare the simulated data to the real data, derive that the jump-diffusion stochastic volatility model can better fitting the time series of daily returns.