embedded in index options. While market illiquidity and return volatility play complementary roles in explaining the time …-varying crash risk, the relative contribution of the volatility factor is weakened once we include market illiquidity as an economic …

We estimate a continuous-time model with stochastic volatility and dynamic crash probability for the S&P 500 index and …

diffusive volatility and squared jump variation. We use this result to develop a new option valuation model in which the … underlying asset price exhibits volatility and jump intensity dynamics. The volatility and jump intensity dynamics in the model … are directly driven by model-free empirical measures of diffusive volatility and jump variation. Because the empirical …