Asymmetry in the jump-size distribution of the S&P 500: Evidence from equity and option markets

Andreas Kaeck

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 9, 1872-1888

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.

Keywords: Jump-size distribution; European options; S&P 500; Model calibration (search for similar items in EconPapers)
JEL-codes: C13 C63 G13 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:9:p:1872-1888

DOI: 10.1016/j.jedc.2013.04.008

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