Dynamic jump intensities and risk premiums: Evidence from S&P500 returns and options

Peter Christoffersen, Kris Jacobs and Chayawat Ornthanalai

Journal of Financial Economics, 2012, vol. 106, issue 3, 447-472

Abstract: We build a new class of discrete-time models that are relatively easy to estimate using returns and/or options. The distribution of returns is driven by two factors: dynamic volatility and dynamic jump intensity. Each factor has its own risk premium. The models significantly outperform standard models without jumps when estimated on S&P500 returns. We find very strong support for time-varying jump intensities. Compared to the risk premium on dynamic volatility, the risk premium on the dynamic jump intensity has a much larger impact on option prices. We confirm these findings using joint estimation on returns and large option samples.

Keywords: Compound Poisson jumps; Analytical filtering; Fat tails; Risk premiums (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (87)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:106:y:2012:i:3:p:447-472

DOI: 10.1016/j.jfineco.2012.05.017

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