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Journal of Financial Economics Vol. 106 No. 3 2012

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

Peter Christoffersen1,2; Kris Jacobs3,4; Chayawat Ornthanalai2

1 Copenhagen Business School · 2 University of Toronto · 3 University of Houston · 4 Tilburg University

open access

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.

DOI
10.1016/j.jfineco.2012.05.017
Volume
106
Issue
3
Pages
447-472
Language
en
Sources
openalex crossref bibtex:phds-export.bib

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