Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098709 | Journal of Economic Dynamics and Control | 2013 | 17 Pages |
Abstract
This paper studies alternative distributions for the size of price jumps in the S&P 500 index. We introduce a range of new jump-diffusion models and extend popular double-jump specifications that have become ubiquitous in the finance literature. The dynamic properties of these models are tested on both a long time series of S&P 500 returns and a large sample of European vanilla option prices. We discuss the in- and out-of-sample option pricing performance and provide detailed evidence of jump risk premia. Models with double-gamma jump size distributions are found to outperform benchmark models with normally distributed jump sizes.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Andreas Kaeck,