In this paper we compare the price of an option with one year maturity of the German stock index DAX for several volatility models including long memory and leverage effects. We compute the price by applying a present value scheme as well as the Black-Scholes and Hull-White formulas which...

If the intensity parameter in a jump diffusion model is identically zero, then parameters characterizing the jump size density cannot be identified. In general, this lack of identification precludes consistent estimation of identified parameters. Hence, it should be standard practice to...

This paper conducts a thorough and detailed investigation on the implications of stochastic volatility and random jump on option prices. Both stochastic volatility and jump-diffusion processes admit asymmetric and fat-tailed distribution of asset returns and thus have similar impact on option...

Volatility clustering, long-range dependence, non-Gaussianity and anomalous scaling are all well-known stylized facts of financial assets return dynamics. These elements have a relevant impact on the aptness of models for the pricing of options written on financial assets. We make us of a model...

In this paper we examine the empirical performance of affine jump diffusion models with stochastic volatility in a time series study of crude oil prices. We compare four different models and estimate them using the Markov Chain Monte Carlo method. The support for a stochastic volatility model...

In this paper, we fill a gap in the financial econometrics literature, by developing a “jump test” for the null hypothesis that the probability of a jump is zero. The test is based on realized third moments, and uses observations over an increasing time span. The test offers an alternative...

In this paper we 'update' the option implied probability of default (option iPoD) approach recently suggested in the literature. First, a numerically more stable objective function for the estimation of the risk neutral density is derived whose integrals can be solved analytically. Second, it is...

In this paper we 'update' the option implied probability of default (option iPoD) approach recently suggested in the literature. First, a numerically more stable objective function for the estimation of the risk neutral density is derived whose integrals can be solved analytically. Second, it is...

Realized divergence gauges the distinct realized moments associated with time-varying uncertainty and is tradeable with divergence swaps engineered from delta-hedged option portfolios. Consistently with established notions of symmetry in arbitrage-free option markets, implied divergence...

In this paper we ‘update’ the option implied probability of default (option iPoD) approach recently suggested in the literature. First, a numerically more stable objective function for the estimation of the risk neutral density is derived whose integrals can be solved analytically. Second,...