The Impact of Overnight Periods on Option Pricing

Mark-Jan Boes, Feike C. Drost () and Bas J. M. Werker

Journal of Financial and Quantitative Analysis, 2007, vol. 42, issue 2, 517-533

Abstract: This paper investigates the effect of closed overnight exchanges on option prices. During the trading day, asset prices follow the literature's standard affine model that allows for stochastic volatility and random jumps. Independently, the overnight asset price process is modeled by a single jump. We find that the overnight component reduces the variation in the random jump process significantly. However, neither the random jumps nor the overnight jumps alone are able to empirically describe all features of option prices. We conclude that both random jumps during the day and overnight jumps are important in explaining option prices, where the latter account for about one quarter of total jump risk.

Date: 2007
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Citations: View citations in EconPapers (13)

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Related works:
Working Paper: The impact of overnight periods on option pricing (2007)
Working Paper: The Impact of Overnight Periods on Option Pricing (2005)
Working Paper: The Impact of Overnight Periods on Option Pricing (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:42:y:2007:i:02:p:517-533_00

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