Jump dynamics, spillover effect and option valuation

Zhiyuan Pan, Jiangyu Shuai, Zhilei Liang and Xianchao Sun

The North American Journal of Economics and Finance, 2022, vol. 62, issue C

Abstract: In this paper, we propose an affine discrete-time model that incorporates the jump process and spillover effect for valuing the 50 ETF options in China. Based on the proposed model, a closed-form solution is also derived for the new dynamics of underlying asset, which facilitates option pricing. The empirical results show that the proposed model offers greater economic benefit with reduced pricing errors than the traditional benchmark models, including the popular HNGARCH model of Heston and Nandi (2000), GARV model of Christoffersen et al. (2014), and BPJVM model of Christoffersen et al. (2015). Our finding is important for financial risk management and investment in Chinese derivatives market.

Keywords: Option valuation; Spillover effect; Jump process; 50 ETF options (search for similar items in EconPapers)
JEL-codes: C58 G12 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:62:y:2022:i:c:s1062940822000687

DOI: 10.1016/j.najef.2022.101717

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