CGMY-Modeling of Equity Index Options : Optimal Econometric Specifications

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 ‘smirk’ effect, and correlation between the returns and the speeds is not necessary for this. The speeds themselves can be modeled as jumps or diffusions; the results look similar, and for parsimony, we favour the diffusion specification

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Year of publication:	2022
Authors:	Carverhill, Andrew P. ; Luo, Dan
Publisher:	[S.l.] : SSRN
Subject:	Index-Futures \| Index futures \| Optionsgeschäft \| Option trading \| Optionspreistheorie \| Option pricing theory

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