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Empirical Performance of the Czech and Hungarian Index Options under Jump


  • Lee, Gabriel S.

    (Institute for Advanced Studies, Vienna)

  • Boss, Michael

    (Oesterreichische Nationalbank)

  • Klisz, Chris

    (Academia Istropolitana Nova)


This paper analyses Czech and Hungarian index options that are traded on the Austrian Futures and Options Exchange. We find that the Poisson jump-diffusion and not the GARCH (1,1) process lends statistical support for the data description. We estimate that approximately four-fifth of 4 percent underpricing (for the Czech Index) and 18 percent overpricing (for the Hungarian Index) biases reported for the short term out-of-the-money call options can be explained by the Jump option pricing model. However, we question whether the mispricings from the jump model are operational, especially, in these emerging financial markets.

Suggested Citation

  • Lee, Gabriel S. & Boss, Michael & Klisz, Chris, 2001. "Empirical Performance of the Czech and Hungarian Index Options under Jump," Economics Series 91, Institute for Advanced Studies.
  • Handle: RePEc:ihs:ihsesp:91

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    References listed on IDEAS

    1. Amin, Kaushik I, 1993. " Jump Diffusion Option Valuation in Discrete Time," Journal of Finance, American Finance Association, vol. 48(5), pages 1833-1863, December.
    2. Jorion, Philippe, 1995. " Predicting Volatility in the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 50(2), pages 507-528, June.
    3. Bates, David S, 1996. "Jumps and Stochastic Volatility: Exchange Rate Processes Implicit in Deutsche Mark Options," Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 69-107.
    4. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    5. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    6. Dravid, Ajay & Richardson, Matthew & Sun, Tong-Sheng, 1994. "The pricing of dollar-denominated yen/DM warrants," Journal of International Money and Finance, Elsevier, vol. 13(5), pages 517-536, October.
    7. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
    8. Bodurtha, James N. & Courtadon, Georges R., 1987. "Tests of an American Option Pricing Model on the Foreign Currency Options Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(02), pages 153-167, June.
    9. Bates, David S., 1996. "Dollar jump fears, 1984-1992: distributional abnormalities implicit in currency futures options," Journal of International Money and Finance, Elsevier, vol. 15(1), pages 65-93, February.
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    More about this item


    Leptokurtosis; Poisson jump-diffusion; GARCH; Equity index;

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection


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