Dynamic jump intensities and risk premia: Evidence from S&P500 returns and options
Christoffersen,P. Jacobs,K. Ornthanalai,C.
Christoffersen,P.
Jacobs,K.
Ornthanalai,C.
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.
Description
Date
2012
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
Organizational Units
Journal Issue
Keywords
Citation
Christoffersen, P, Jacobs, K & Ornthanalai, C 2012, 'Dynamic jump intensities and risk premia : Evidence from S &P500 returns and options', Journal of Financial Economics, vol. 106, no. 3, pp. 447-472. https://doi.org/10.1016/j.jfineco.2012.05.017