Time-Varying Jump Intensities and Fat Tail Dynamics: Evidence from S&P500 Returns and Options

Peter Christoffersen, Kris Jacobs and Chayawat Ornthanalai
Additional contact information
Kris Jacobs: University of Houston and University of McGill
Chayawat Ornthanalai: GA Institute of Technology

Working Papers from University of Pennsylvania, Wharton School, Weiss Center

Abstract: We present a new discrete-time GARCH jump framework that allows for rich dynamics in higher moments by combining heteroskedastic processes with fat-tailed innovations in returns and volatility. We provide a tractable risk neutralization framework allowing for option valuation with separate modeling of risk premia for the jump and normal innovations. Our models can be estimated with ease on returns using standard maximum likelihood techniques, and joint estimation on returns and a large sample of options is also feasible. We find very strong empirical support for time-varying jump intensities, when estimating on S&P500 returns and on returns and options jointly.

JEL-codes: G13 (search for similar items in EconPapers)
Date: 2010-05
References: Add references at CitEc
Citations:

Downloads: (external link)
http://fic.wharton.upenn.edu/fic/papers/11/11-19.pdf
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://fic.wharton.upenn.edu/fic/papers/11/11-19.pdf [301 Moved Permanently]--> https://wifpr.wharton.upenn.edu/fic/papers/11/11-19.pdf)

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:ecl:upafin:11-19

Access Statistics for this paper

More papers in Working Papers from University of Pennsylvania, Wharton School, Weiss Center Contact information at EDIRC.
Bibliographic data for series maintained by ().