Disentangling Volatility from Jumps

Realistic models for financial asset prices used in portfolio choice, option pricing or risk management include both a continuous Brownian and a jump components. This paper studies our ability to distinguish one from the other. I find that, surprisingly, it is possible to perfectly disentangle Brownian noise from jumps. This is true even if, unlike the usual Poisson jumps, the jump process exhibits an infinite number of small jumps in any finite time interval, which ought to be harder to distinguish from Brownian noise, itself made up of many small moves.