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Asymmetry in the jump-size distribution of the S&P 500: Evidence from equity and option markets

  • Kaeck, Andreas
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    This paper studies alternative distributions for the size of price jumps in the S&P 500 index. We introduce a range of new jump-diffusion models and extend popular double-jump specifications that have become ubiquitous in the finance literature. The dynamic properties of these models are tested on both a long time series of S&P 500 returns and a large sample of European vanilla option prices. We discuss the in- and out-of-sample option pricing performance and provide detailed evidence of jump risk premia. Models with double-gamma jump size distributions are found to outperform benchmark models with normally distributed jump sizes.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0165188913000857
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    Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

    Volume (Year): 37 (2013)
    Issue (Month): 9 ()
    Pages: 1872-1888

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    Handle: RePEc:eee:dyncon:v:37:y:2013:i:9:p:1872-1888
    Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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