The Pricing of Jump Propagation : Evidence from Spot and Options Markets
Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal › peer-review
Author(s)
Related Research Unit(s)
Detail(s)
| Original language | English |
|---|---|
| Pages (from-to) | 2360-2387 |
| Journal / Publication | Management Science |
| Volume | 65 |
| Issue number | 5 |
| Online published | 22 Dec 2017 |
| Publication status | Published - 1 May 2019 |
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Abstract
This paper examines the joint time series of the S&P 500 index and its options with a two-factor Hawkes jump-diffusion model that captures jump propagation (i.e., the phenomenon in which the strike of one jump substantially raises the probability for more to follow). The propagation effect uncovered from the joint data is severe but short lived. On average, this component takes up more than two-thirds of the total jump risks. Our jump specification proves crucial not only in reconciling the dynamics implied from the joint data, but also in explaining the time series of option-implied volatility skew.
Research Area(s)
- jump propagation, joint pricing, option volatility skew, Hawkes jumps
Citation Format(s)
The Pricing of Jump Propagation: Evidence from Spot and Options Markets. / Du, Du; Luo, Dan.
In: Management Science, Vol. 65, No. 5, 01.05.2019, p. 2360-2387.
In: Management Science, Vol. 65, No. 5, 01.05.2019, p. 2360-2387.
Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal › peer-review
