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

journal contribution
posted on 2023-06-08, 15:12 authored by Andreas KaeckAndreas Kaeck
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.

History

Publication status

  • Published

Journal

Journal of Economic Dynamics and Control

ISSN

0165-1889

Publisher

Elsevier

Issue

9

Volume

37

Page range

1872-1888

Department affiliated with

  • Economics Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2013-09-09

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