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Under very general conditions, the total quadratic variation of a jump-diffusion process can be decomposed into diffusive volatility and squared jump variation. We use this result to develop a new option valuation model in which the underlying asset price exhibits volatility and jump intensity...
Persistent link: https://www.econbiz.de/10011396715
Forecasting correlations between stocks and commodities is important for diversification across asset classes and other risk management decisions. Correlation forecasts are affected by model uncertainty, the sources of which can include uncertainty about changing fundamentals and associated...
Persistent link: https://www.econbiz.de/10011995202
We estimate a continuous-time model with stochastic volatility and dynamic crash probability for the S&P 500 index and find that market illiquidity dominates other factors in explaining the stock market crash risk. While the crash probability is time-varying, its dynamic depends only weakly on...
Persistent link: https://www.econbiz.de/10011564715