Review of Finance Vol. 21 No. 2 2017
Jump and Volatility Dynamics for the S&P 500: Evidence for Infinite-Activity Jumps with Non-Affine Volatility Dynamics from Stock and Option Markets
Abstract
Relatively little is known about the empirical performance of infinite-activity Lévy jump models, especially with non-affine volatility dynamics. We use extensive empirical data sets to study how infinite-activity Variance Gamma and Normal Inverse Gaussian (NIG) jumps with affine and non-affine volatility dynamics improve goodness of fit and option pricing performance. With Markov Chain Monte Carlo, different model specifications are estimated using the joint information of the S&P 500 index and the VIX. Our article provides clear evidence that a parsimonious non-affine model with NIG return jumps and a linear variance specification is particularly competitive, even during the recent crisis.
- DOI
- 10.1093/rof/rfw001
- Volume
- 21
- Issue
- 2
- Pages
- 811-844
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref