Lévy jump risk: Evidence from options and returns
Using index options and returns from 1996 to 2009, I estimate discrete-time models where asset returns follow a Brownian increment and a Lévy jump. Time variations in these models are generated with an affine GARCH, which facilitates the empirical implementation. I find that the risk premium implied...
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| Veröffentlicht in: | Journal of financial economics 2014-04, Vol.112 (1), p.69-90 |
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| container_title | Journal of financial economics |
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| creator | Ornthanalai, Chayawat |
| description | Using index options and returns from 1996 to 2009, I estimate discrete-time models where asset returns follow a Brownian increment and a Lévy jump. Time variations in these models are generated with an affine GARCH, which facilitates the empirical implementation. I find that the risk premium implied by infinite-activity jumps contributes to more than half of the total equity premium and dominates that of the Brownian increments suggesting that it is more representative of the risks present in the economy. Overall, my findings suggest that infinite-activity jumps, instead of the Brownian increments, should be the default modeling choice in asset pricing models. |
| doi_str_mv | 10.1016/j.jfineco.2013.11.009 |
| format | Article |
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| ispartof | Journal of financial economics, 2014-04, Vol.112 (1), p.69-90 |
| issn | 0304-405X 1879-2774 |
| language | eng |
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| source | Elsevier ScienceDirect Journals |
| subjects | Asset pricing Discrete-time Economic analysis Economic models Economic theory Financial economics GARCH Investment analysis Lévy process Modelling Option valuation Personal finance Probability distribution Rates of return Risk premium Risk premiums Stochastic models Studies |
| title | Lévy jump risk: Evidence from options and returns |
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