Online Supplement to Jumps in Equity Index Returns Before and During the Recent Financial Crisis: A Bayesian Analysis
نویسندگان
چکیده
We provide the option pricing formula of the SV-DEJ model as follows. Following the assumptions in Yu, Li and Wells (2011), we let γ (1) t = η svt and γ t = − 1 √ 1−ρ2 (ρη+ η v σv ) √ vt, where η s and η are the market prices of risk. Then there exists a risk-neutral measure Q under which W (1) t (Q) and W (2) t (Q) are standard Brownian motions: dW (i) t (Q) := dW (1) t + γ t dt, i = 1, 2 (Equation (2.8) in Yu, Li and Wells (2011)). Under this condition, Yu, Li and Wells (2011) provide the pricing formula of vanilla call for affine-jump diffusion model given the jump compensator ψJ (u) and the initial log price Y0, initial volatility v0, maturity T and strike K: (assuming constant interest rate r)
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Jumps in Equity Index Returns Before and During the Recent Financial Crisis: A Bayesian Analysis
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