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Stochastic Volatility Jump†Diffusions for European Equity Index Dynamics

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  • Andreas Kaeck
  • Carol Alexander

Abstract

Major research on equity index dynamics has investigated only US indices (usually the S&P 500) and has provided contradictory results. In this paper a clarification and extension of that previous research is given. We find that European equity indices have quite different dynamics from the S&P 500. Each of the European indices considered may be satisfactorily modelled using either an affine model with price and volatility jumps or a GARCH volatility process without jumps. The S&P 500 dynamics are much more difficult to capture in a jump†diffusion framework.

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  • Andreas Kaeck & Carol Alexander, 2013. "Stochastic Volatility Jump†Diffusions for European Equity Index Dynamics," European Financial Management, European Financial Management Association, vol. 19(3), pages 470-496, June.
    • Handle: RePEc:bla:eufman:v:19:y:2013:i:3:p:470-496
    DOI: 10.1111/j.1468-036X.2010.00613.x
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    9. Johannes Rauch & Carol Alexander, 2016. "Tail Risk Premia for Long-Term Equity Investors," Papers 1602.00865, arXiv.org.
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    11. Márcio Poletti Laurini & Roberto Baltieri Mauad & Fernando Antonio Lucena Aiube, 2016. "Multivariate Stochastic Volatility-Double Jump Model: an application for oil assets," Working Papers Series 415, Central Bank of Brazil, Research Department.
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