A Spectral Estimation of Tempered Stable Stochastic Volatility Models and Option Pricing
AbstractA characteristic function-based method is proposed to estimate the time-changed L´evy models, which take into account both stochastic volatility and infinite-activity jumps. The method facilitates computation and overcomes problems related to the discretization error and to the non-tractable probability density. Estimation results and option pricing performance indicate that the infiniteactivity model performs better than the finite-activity one. By introducing a jump component in the volatility process, a double-jump model is also investigated.
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Bibliographic InfoPaper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 370.
Date of creation: 2010
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Other versions of this item:
- Li, Junye & Favero, Carlo & Ortu, Fulvio, 2012. "A spectral estimation of tempered stable stochastic volatility models and option pricing," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3645-3658.
- NEP-ALL-2010-12-04 (All new papers)
- NEP-ECM-2010-12-04 (Econometrics)
- NEP-ORE-2010-12-04 (Operations Research)
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