EconPapers    
Economics at your fingertips  
 

Volatility dynamics for the S&P 500: Further evidence from non-affine, multi-factor jump diffusions

Andreas Kaeck and Carol Alexander ()

Journal of Banking & Finance, 2012, vol. 36, issue 11, 3110-3121

Abstract: We apply Markov chain Monte Carlo methods to time series data on S&P 500 index returns, and to its option prices via a term structure of VIX indices, to estimate 18 different affine and non-affine stochastic volatility models with one or two variance factors, and where jumps are allowed in both the price and the instantaneous volatility. The in-sample fit to the VIX term structure shows that the second (stochastic long-term volatility) factor is required to fit the VIX term structure. Out-of-sample tests on the fit to individual option prices, as well as in-sample tests, show that the inclusion of jumps is less important than allowing for non-affine dynamics. The estimation and testing periods together cover more than 21 years of daily data.

Keywords: Gibbs sampler; Instantaneous volatility dynamics; MCMC; Particle filter; S&P 500 options; VIX (search for similar items in EconPapers)
JEL-codes: G13 C13 C63 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426612001926
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:11:p:3110-3121

DOI: 10.1016/j.jbankfin.2012.07.012

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Haili He ().

 
Page updated 2020-10-25
Handle: RePEc:eee:jbfina:v:36:y:2012:i:11:p:3110-3121