Branger, Nicole; Rodrigues, Paulo Jorge Maurício; … - 2017
We propose a long-run risk model with stochastic volatility, a time-varying mean reversion level of volatility, and … variance but driven by a separate process. We show that this separation of jump risk from volatility risk is needed to match … the empirically weak link between the level and the slope of the implied volatility smile for S&P 500 options. …