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The Impact of Jumps in Volatility and Returns
Abstract
This paper examines continuous‐time stochastic volatility models incorporating jumps in returns and volatility. We develop a likelihood‐based estimation strategy and provide estimates of parameters, spot volatility, jump times, and jump sizes using S&P 500 and Nasdaq 100 index returns. Estimates of jump times, jump sizes, and volatility are particularly useful for identifying the effects of these factors during periods of market stress, such as those in 1987, 1997, and 1998. Using formal and informal diagnostics, we find strong evidence for jumps in volatility and jumps in returns. Finally, we study how these factors and estimation risk impact option pricing.
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Citations
Cited by
The Price of Political Uncertainty: Theory and Evidence from the Option Market
KELLY, B., PÁSTOR, Ľ., & VERONESI, P. (2016) · The Journal of Finance · doi:10.1111/jofi.12406 · Cited by 760
Threshold bipower variation and the impact of jumps on volatility forecasting
Corsi, F., Pirino, D., & Renò, R. (2010) · Journal of Econometrics · doi:10.1016/j.jeconom.2010.07.008 · Cited by 561
Option valuation with conditional skewness
Christoffersen, P., Heston, S., & Jacobs, K. (2006) · Journal of Econometrics · doi:10.1016/j.jeconom.2005.01.010 · Cited by 281
Bollerslev, T., Li, S. Z., & Todorov, V. (2016) · Journal of Financial Economics · doi:10.1016/j.jfineco.2016.02.001 · Cited by 180
Metadata
- Authors
- Eraker, B., Johannes, M., & Polson, N.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 2003-05-06
- Volume
- 58
- Issue
- 3
- Pages
- 1269-1300
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W3124264635
- Cited by
- 1,462
- References
- 0
- FWCI
- 87.77
- Type
- journal article
- Language
- en
- Open access
- closed
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- Eraker, B., Johannes, M., & Polson, N. (2003). The Impact of Jumps in Volatility and Returns. The Journal of Finance. https://doi.org/10.1111/1540-6261.00566
Data sources
Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
