MCMC Estimation of SVDJ Model with Jump Risk

In this paper, the authors propose a new stochastic model, SVDJ model which has allowed for jump risk, to describe the dynamics behavior of spot exchange rate, and develop a MCMC (Markov chain Monte Carlo) method for the estimation of parameters, jumps, and volatility. Our empirical results indicate the significant existence of jumps in exchange rate process, and the incorporation of jump risk in exchange rate process is important for RMB forwards pricing.