Model specification of conditional jump intensity: Evidence from S&P 500 returns and option prices

Hung-Wen Cheng, Chien-Ling Lo and Jeffrey Tzuhao Tsai

The North American Journal of Economics and Finance, 2020, vol. 54, issue C

Abstract: This study investigates the model specification of the conditional jump intensity under option pricing models having a generalized autoregressive conditional heteroskedastic with jumps (GARCH-jump). We compare three GARCH-jump models of Chang, Chang, Cheng, Peng, and Tseng (2018) to examine whether specifying asymmetric jumps in conditional jump intensity can improve the empirical performance. The empirical results from S&P 500 returns and options show that specifying the asymmetric jumps into the conditional jump intensity does improve the in-sample pricing errors and implied volatility errors. However, the out-of-sample results depend on the error measurement.

Keywords: Option valuation; GARCH; Conditional jump intensity (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940818303772

DOI: 10.1016/j.najef.2018.08.024

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