Stochastic volatility jump-diffusions for European equity index dynamics
نویسندگان
چکیده
Major research on equity index dynamics has investigated only US indices (usually the S&P 500) and has provided contradictory results. In this paper a clarification and extension of that previous research is given. We find that European equity indices have quite different dynamics from the S&P 500. Each of the European indices considered may be satisfactorily modelled using either an affine model with price and volatility jumps or a GARCH volatility process without jumps. The S&P 500 dynamics are much more difficult to capture in a jump-diffusion framework.
منابع مشابه
Option pricing under the double stochastic volatility with double jump model
In this paper, we deal with the pricing of power options when the dynamics of the risky underling asset follows the double stochastic volatility with double jump model. We prove efficiency of our considered model by fast Fourier transform method, Monte Carlo simulation and numerical results using power call options i.e. Monte Carlo simulation and numerical results show that the fast Fourier tra...
متن کاملExtension of Stochastic Volatility Equity Models with Hull-White Interest Rate Process
We present an extension of stochastic volatility equity models by a stochastic Hull-White interest rate component while assuming non-zero correlations between the underlying processes. We place these systems of stochastic differential equations in the class of affine jump diffusion linear quadratic jump-diffusion processes (Duffie, Pan and Singleton [13], Cheng and Scaillet [10]) so that the pr...
متن کاملEstimation of Continuous Time Processes Via the Empirical Characteristic Function
This paper examines a particular class of continuous-time stochastic processes commonly known as af¿ne diffusions (AD) and af¿ne jump-diffusions (AJD) in which the drift, the diffusion and the jump coef¿cients are all af¿ne functions of the state variables. By deriving the joint characteristic function associated with a vector of observed state variables for such models, we are able to examine ...
متن کاملApproximating GARCH-Jump Models, Jump-Diffusion Processes, and Option Pricing
This paper considers the pricing of options when there are jumps in the pricing kernel and correlated jumps in asset prices and volatilities. We extend theory developed by Nelson (1990) and Duan (1997) by considering limiting models for our resulting approximating GARCH-Jump process. Limiting cases of our processes consist of models where both asset price and local volatility follow jump diffus...
متن کاملStochastic Volatility with Reset at Jumps
This paper presents a model for asset returns incorporating both stochastic volatility and jump e ects. The return process is driven by two types of randomness: small random shocks and large jumps. The stochastic volatility process is a ected by both types of randomness in returns. Speci cally, in the absence of large jumps, volatility is driven by the small random shocks in returns through a G...
متن کامل