Bakshi, Kapadia, and Madan (2003) risk‐neutral moment estimators: An affine jump‐diffusion approach

Pakorn Aschakulporn and Jin E. Zhang

Journal of Futures Markets, 2022, vol. 42, issue 3, 365-388

Abstract: This is the first study of the errors in the Bakshi, Kapadia, and Madan risk‐neutral moment estimators under the Duffie, Pan, and Singleton affine jump‐diffusion model benchmarked against their true values. This is accomplished by extending the exact solutions from Zhen and Zhang. To mitigate errors in skewness, interpolating the implied volatility curve linearly and applying constant extrapolation to have a step size of $1 and strikes ranging from a quarter to quadruple the forward price should yield skewness values with errors less than 1 0 − 3, based on simulated data using parameters calibrated with the S&P 500 index during 2020.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1002/fut.22280

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:wly:jfutmk:v:42:y:2022:i:3:p:365-388

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0270-7314

Access Statistics for this article

Journal of Futures Markets is currently edited by Robert I. Webb

More articles in Journal of Futures Markets from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().