Dynamic jump intensities and risk premiums: Evidence from S&P500 returns and options
By Peter F. Christoffersen, Kris Jacobs, C. Ornthanalai. 2012
195 citations recorded by the source corpus.
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.
Subfields: Finance
View Paper: https://www.semanticscholar.org/paper/014abbba82e6431eb0b55e0dcb54eee92452e91b
Citations in the corpus
- Tail risk premia and return predictability (2014, unknown): “Correspondingly, in models that do allow for jumps, the jump arrival rates are typically taken to be constant, although the estimates in Christoffersen, Jacobs, and Ornthanalai (2012) and Andersen, Fusari, and Todorov (2015), approach for estimating the temporal variation in the jump tail risk…”
- Short-Term Market Risks Implied by Weekly Options (2017, unknown): “Option pricing implications of qualitatively similar features of the return distribution are pursued within a discrete-time GARCH setting by Christoffersen et al. (2012).”
- Time-Varying Jump Tails (2014, unknown): “…tails from options is related to an earlier literature that seek to better explain option prices through jump risk; see, e.g., Bates (1996), Bates (2000), Andersen et al. (2002), Pan (2002), Eraker (2004) and Broadie et al. (2007), along with the more recent work by Christoffersen et al. (2012).”
- Option Valuation with Observable Volatility and Jump Dynamics (2015, unknown): “Corrt(Rt+1; ht+1) = 2 azhz;t + ay ( 2 + (2))( 2 + 3 (2))hy;t p V art [Rt+1]V art(ht+1) (16)”