This study combines the empirical estimation of a Double-Exponential Jump-Diffusion (DEJD) process for a CDS index and the use of estimated parameters to price options on the index. In the first step we find Maximum Likelihood estimates for the diffusion volatility, the Poisson jump frequencies,...

An asymmetric jump-diffusion model of stock price behavior is proposed. In an extension of Merton's (1976), we posit that returns dynamics are determined by a drift component, a Wiener process and two jump processes representing the arrival of quot;goodquot; or quot;badquot; news that lead to...

This paper derives a nonparametric estimation procedure for continuous-time models and provides the asymptotic distribution of the estimator. Since the pricing of derivative securities depends crucially on the form of the instantaneous volatility of the underlying asset, the diffusion function...

This article provides a mathematical and empirical investigation of the reasons for the presence of skewness and kurtosis in financial data. The results indicate that this phenomenon is triggered by higher-order moment dependencies in the data, such as asymmetric and conditional volatility....

This article investigates the empirical distributions of log-returns of several financial assets at the daily, weekly, monthly, bimonthly, and quarterly frequencies. The results indicate that the distributions possess significant skewness and leptokurtosis. These findings are attributed to...

In this paper we show that it is invalid to use standard maximum likelihood procedures in estimating jump-diffusion models. The reason is that in jump-diffusion models the log-return is equivalent to a discrete mixture of N normally distributed variables, where N goes to infinity. Thus, from the...

This paper develops option-based estimators of the diffusion using the Estimating Function approach. The resulting estimators have a generic structure that applies to a wide class of state-time separable diffusions found in option pricing models. Our methodology differs from the related...

This paper proposes a characteristic function-based method to estimate the time-changed Levy 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...

Many models of the term structure of interest rates rely on a continuous-time specification of the short rate process as one of their factors. Different parametric specifications for this process, often arbitrary and mutually exclusive, coexist in the literature. It is important to specify this...

The purpose of the paper is twofold. First, it aims at identifying when UK and European (France, Germany, Italy and Spain) Credit Default Swaps(CDSs) exhibit explosivity with respect to their past behaviors. Second, it seeks to quantify the dynamics of CDS volatility spillover effects...