Economics at your fingertips  

Tempered Stable Processes with Time Varying Exponential Tails

Young Shin Kim (), Kum-Hwan Roh () and Raphaël Douady ()
Additional contact information
Young Shin Kim: SBU - Stony Brook University [SUNY] - SUNY - State University of New York
Kum-Hwan Roh: HNU - Hannam University
Raphaël Douady: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: In this paper, we introduce a new time series model having a stochastic exponential tail. This model is constructed based on the Normal Tempered Stable distribution with a time-varying parameter. The model captures the stochastic exponential tail, which generates the volatility smile effect and volatility term structure in option pricing. Moreover, the model describes the time-varying volatility of volatility. We empirically show the stochastic skewness and stochastic kurtosis by applying the model to analyze S\&P 500 index return data. We present the Monte-Carlo simulation technique for the parameter calibration of the model for the S\&P 500 option prices. We can see that the stochastic exponential tail makes the model better to analyze the market option prices by the calibration.

Keywords: Levy Process; Normal tempered stable distribution; Volatility of volatility; Stochastic exponential tail; Option Pricing (search for similar items in EconPapers)
Date: 2020-11-22
New Economics Papers: this item is included in nep-ets, nep-ore and nep-rmg
Note: View the original document on HAL open archive server:
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/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:

Access Statistics for this paper

More papers in Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL
Bibliographic data for series maintained by CCSD ().

Page updated 2021-06-22
Handle: RePEc:hal:cesptp:hal-03018495