An Empirical Investigation of Continuous-Time Equity Return Models

Torben Andersen, Luca Benzoni and Jesper Lund

No 8510, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper extends the class of stochastic volatility diffusions for asset returns to encompass Poisson jumps of time-varying intensity. We find that any reasonably descriptive continuous-time model for equity-index returns must allow for discrete jumps as well as stochastic volatility with a pronounced negative relationship between return and volatility innovations. We also find that the dominant empirical characteristics of the return process appear to be priced by the option market. Our analysis indicates a general correspondence between the evidence extracted from daily equity-index returns and the stylized features of the corresponding options market prices.

JEL-codes: C50 G12 (search for similar items in EconPapers)
Date: 2001-10
New Economics Papers: this item is included in nep-fmk
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Published as Andersen, Torben G., Luca Benzoni and Jesper Lund. "An Empirical Investigation Of Continuous-Time Equity Return Models," Journal of Finance, 2002, v57(3,Jun), 1239-1284.

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Journal Article: An Empirical Investigation of Continuous‐Time Equity Return Models (2002)
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