Using merton jump diffusion model to analyze the response of Jakarta Islamic index stock prices during Covid-19 pandemic.

The emergence of the COVID-19 pandemic has become a novel risk factor that led to an unprecedented disruption to the global economy and financial markets due to the investors' rapid and synchronous sell-off. This resulted in the movement of stock prices increasingly erratic. Jumps and leptokurtic are features that generally describe price movements of stocks. In this paper, we investigate these features on five selected Islamic stock prices from the Jakarta Islamic Index Indonesia, covering daily closing prices in the period from January 2, 2020, until February 23, 2021. We aim to model this data with Merton Jump Diffusion (MJD) model which is among the well-known jump diffusion models that incorporates Poisson jump process with the Brownian motion. The parameters consisting of the jump intensity, the mean, the standard deviation, the expected instantaneous return, and the instantaneous volatility, all these parameters are estimated using the maximum likelihood estimation approach. Results show that the MJD model captures stochastic movements and sensitive to jump points, furthermore the log-return density shows the presence of leptokurtic abnormality. This information provides an understanding of the effects of the pandemic and allows practitioners to have clear view of the risk during unusual event. [ABSTRACT FROM AUTHOR]

Copyright of AIP Conference Proceedings is the property of American Institute of Physics and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)