A spectral estimation of tempered stable stochastic volatility models and option pricing

Junye Li, Carlo Favero () and Fulvio Ortu

Computational Statistics & Data Analysis, 2012, vol. 56, issue 11, 3645-3658

Abstract: A characteristic function-based method is proposed to estimate the time-changed Lévy models, which take into account both stochastic volatility and infinite-activity jumps. The method facilitates computation and overcomes problems related to the discretization error and to the non-tractable probability density. Estimation results and option pricing performance indicate that the infinite-activity model performs better than the finite-activity one. By introducing a jump component in the volatility process, a double-jump model is also investigated.

Keywords: Empirical characteristic function; Stochastic volatility; Infinite-activity jumps; Option pricing; Continuous GMM (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: A Spectral Estimation of Tempered Stable Stochastic Volatility Models and Option Pricing (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:csdana:v:56:y:2012:i:11:p:3645-3658

DOI: 10.1016/j.csda.2010.11.013

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