We model the S&P500 index options dynamics using the CGMY distribution, with independent "up" and "down" return jumps, and diffusive jump intensities. Allowing the up and down parts to be separately parameterised accounts for the dynamic smirk effect, without correlation between returns and...

This paper first designs an efficient procedure to value Credit Default Swap Index tranches using an intensity-based model. The tranche spreads are effectively explained by a three-factor version of this model, both before and during the financial crisis of 2008. We then construct tradable...

We explore the optimal econometric specifications for fitting S&P500 options, in the very flexible CGMY class of models. We favour returns being ‘up’ and ‘down’ pure jumps with separate volatility ‘speeds’; and with down jumps having longer tails. This can account for the options...