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Dissecting skewness under affine jump-diffusions

Author

Listed:
  • Zhen Fang

    (China Economics and Management Academy, Central University of Finance and Economics, 39 Xueyuan South Road, Beijing 100081, China)

  • Zhang Jin E.

    (Department of Accountancy and Finance, Otago Business School, University of Otago, Dunedin 9054, New Zealand)

Abstract

This paper derives the theoretical skewness in a five-factor affine jump-diffusion model with stochastic variance and jump intensity, and jumps in prices and variances. Numerical analysis shows that all of the uncertainties in this model affect skewness. The information regarding jumps in prices is mainly reflected in the short-term skewness. The skewness for other maturities carries the information that is highly correlated with variance. Furthermore, the theoretical VIX and skewness under a simplified five-factor model are used to fit the market risk-neutral volatility and skewness sequentially. The fitting performances are better than traditional double-jump models.

Suggested Citation

  • Zhen Fang & Zhang Jin E., 2020. "Dissecting skewness under affine jump-diffusions," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 24(4), pages 1-19, September.
    • Handle: RePEc:bpj:sndecm:v:24:y:2020:i:4:p:19:n:2
    DOI: 10.1515/snde-2018-0086
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    References listed on IDEAS

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    Cited by:

    1. Zhen, Fang, 2020. "Asymmetric signals and skewness," Economic Modelling, Elsevier, vol. 90(C), pages 32-42.

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    More about this item

    Keywords

    jump-diffusion; skewness; stochastic volatility;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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