A Spectral Estimation of Tempered Stable Stochastic Volatility Models and Option Pricing
A characteristic function-based method is proposed to estimate the time-changed L´evy models, which take into account both stochastic volatility and infinite-activity jumps. The method facilitates computation and overcomes problems related to the discretization error and to the non-tractable probability density. Estimation results and option pricing performance indicate that the infiniteactivity model performs better than the finite-activity one. By introducing a jump component in the volatility process, a double-jump model is also investigated.
Year of publication: |
2010
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Authors: | Lia, Junye ; Favero, Carlo ; Ortu, Fulvio |
Institutions: | IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University |
Saved in:
freely available
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