Dynamic jump intensities and risk premia: Evidence from S&P500 returns and options

P. Christoffersen, K. Jacobs, C. Ornthanalai

Research output: Contribution to journalArticleScientificpeer-review

90 Citations (Scopus)

Abstract

We build a new class of discrete-time models that are relatively easy to estimate using returns and/or options. The distribution of returns is driven by two factors: dynamic volatility and dynamic jump intensity. Each factor has its own risk premium. The models significantly outperform standard models without jumps when estimated on S&P500 returns. We find very strong support for time-varying jump intensities. Compared to the risk premium on dynamic volatility, the risk premium on the dynamic jump intensity has a much larger impact on option prices. We confirm these findings using joint estimation on returns and large option samples.
Original languageEnglish
Pages (from-to)447-472
JournalJournal of Financial Economics
Volume106
Issue number3
Early online date6 Jun 2012
DOIs
Publication statusPublished - 2012

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