Journal ArticleDOI
Dynamic Jump Intensities and Risk Premia: Evidence from S&P500 Returns and Options
Peter Christoffersen,Peter Christoffersen,Peter Christoffersen,Kris Jacobs,Chayawat Ornthanalai +4 more
TLDR
In this paper, a new class of discrete time models where the distribution of daily returns is driven by two factors: dynamic volatility and dynamic jump intensity has its own risk premium is proposed.Abstract:
We build a new class of discrete time models where the distribution of daily returns is driven by two factors: dynamic volatility and dynamic jump intensity. Each factor has its own risk premium. The likelihood function for the models is available using analytical filtering, which makes them much easier to implement than most existing models. Estimating the models on S&P500 returns, we find that they significantly outperform standard models without jumps. We find very strong empirical support for time-varying jump intensities, and thus for flexible skewness and kurtosis dynamics. 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, which is feasible in our class of models.read more
Citations
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Journal ArticleDOI
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Journal ArticleDOI
Time-Varying Jump Tails
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References
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Journal ArticleDOI
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