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Asymmetry in the jump-size distribution of the S&P 500: evidence from equity and option markets
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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Publication status
- Published
Journal
Journal of Economic Dynamics and ControlISSN
0165-1889Publisher
ElsevierExternal DOI
Issue
9Volume
37Page range
1872-1888Department affiliated with
- Economics Publications
Full text available
- No
Peer reviewed?
- Yes
Legacy Posted Date
2013-09-09Usage metrics
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