In this article, we propose a simulation method to implement Hong and Li’s (2005) transition density based test for continuous-time models. The idea is to simulate a sequence of dynamic probability integral transforms, which is the key ingredient of Hong and Li’s (2005) test. The...

We conduct out-of-sample density forecast evaluations of the affine jump diffusion models for the S&P 500 stock index and its options’ contracts. We also examine the time-series consistency between the model-implied spot volatilities using options & returns and only returns. In particular, we...

In this paper we study systemic risks in the Korean banking sector by using two famous systemic risk measures — the MES (marginal expected shortfall) and CoVaR. To compute both measures we employ Engle's dynamic conditional correlation model. Our empirical analysis shows, first, that although...

This paper examines out-of-sample option pricing performances for the affine jump diffusion (AJD) models by using the S&P 500 stock index and its associated option contracts. In particular, we investigate the role of time-varying jump risk premia in the AJD specifications. Our empirical analysis...