What Type of Process Underlies Options? A Simple Robust Test

By Peter P. Carr, Liuren Wu. 2003

305 citations recorded by the source corpus.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/145999fede43f4683ee4f738cc48005593470b77

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Finance

Citations in the corpus

Modeling financial contagion using mutually exciting jump processes (2015, unknown): “…(2005)), power variations (Äıt-Sahalia and Jacod (2009) and Fan and Fan (2011)), truncation methods (Corsi et al. (2010)), evidence from options returns regarding jumps in the underlying asset price (Carr and Wu (2003)), evidence from dynamic replication deviations (Jiang and Oomen (2008)), etc.”
Tails, Fears and Risk Premia (2010, unknown): “This result was first derived in Carr and Wu (2003) in the proof of their Theorem 1.”
Approximation and Calibration of Short-Term Implied Volatilities under Jump-Diffusion Stochastic Volatility (2007, methodology): “General results on the short-term behavior of the option prices under different process specifications can be found in Carr and Wu (2003a).”
Analyzing the Spectrum of Asset Returns: Jump and Volatility Components in High Frequency Data (2010, methodology): “For example, alternative tests for the presence of jumps have been proposed by Aït-Sahalia (2002), Carr and Wu (2003b), Barndorff-Nielsen and Shephard (2004), Huang and Tauchen (2005), Andersen, Bollerslev, and Diebold (2007), Jiang and Oomen (2008), Lee and Mykland (2008), and Lee and Hannig…”
Pricing and Hedging in Exponential Lévy Models: Review of Recent Results (2011, methodology): “The short maturity asymptotics of implied volatility smile in exponential Lévy models can be computed by comparing the option price asymptotics in the Black-Scholes model to those in the exponential Lévy model (many results in this direction can be found in Carr and Wu [13]).”
Testing for jumps in noisy high frequency data (2012, background): “Existing tests for jumps include Aït-Sahalia (2002) (based on the transition function of the process), Carr and Wu (2003) (based on short dated options), Barndorff-Nielsen and Shephard (2004); Huang and Tauchen (2005) and Andersen et al. (2007) (based on bipower variations), Jiang and Oomen (2008)…”
Stock Options and Credit Default Swaps: A Joint Framework for Valuation and Estimation (2010, methodology): “we use the language of stochastic time change of Carr and Wu (2004) and define”
Small-Time Asymptotics of Option Prices and First Absolute Moments (2010, background): “Due to their importance for model calibration and testing, small-time asymptotics of option prices have received considerable attention in recent years; see [2, 5, 6, 7, 10, 11, 12, 13, 14, 15, 16, 17, 22, 24].”
Detecting Jumps from Levy Jump Diffusion Processes (2010, methodology): “Accordingly, their extensive applications have appeared in recent studies such as Carr and Madan (1998), Carr and Wu (2003, 2004, 2006), Huang and Wu (2004), and Bakshi, Carr, and Wu (2005). In light of this fast growing literature and following efforts in developing better inference methods for the”
Fisher's Information for Discretely Sampled Lévy Processes (2004, background): “., Eberlein and Jacod (1997), Chan (1999), Boyarchenko and Levendorskii (2002), Mordecki (2002) and Carr and Wu (2004)], testing for the presence of jumps in asset prices [see A¨ıt–Sahalia (2002) and Carr and Wu (2003)], interest rate modelling [see e.g., Eeberlein abd Raible (1999)], risk managemen”
On time-scaling of risk and the square-root-of-time rule (2006, unknown): “…a more transparent analysis of the failures of the square–root–of–time rule due to rare events. jump diffusion approach is confirmed empirically by the substantially negatively skewed implied distribution of post-’87 out-of-the money put options, see Bates (2000), Pan (2002) and Carr and Wu (2003).”
Model Specification and Risk Premia: Evidence from Futures Options (2007, unknown): “These authors find that option-based estimates of σ v are much larger and estimates of ρ are more negative than those obtained from time-series-based estimates.”
Volatility is rough (2014, unknown): “This is interesting in and of itself in that it provides a counterexample to the widespread belief that the explosion of the volatility smile as τ → 0 (as clearly seen in figures 1 and 2) implies the presence of jumps (Carr and Wu 2003).”