Level and slope of volatility smiles in long-run risk models

We propose a long-run risk model with stochastic volatility, a time-varying mean reversion level of volatility, and jumps in the state variables. The special feature of our model is that the jump intensity is not affine 
We propose a long-run risk model with stochastic volatility, a time-varying mean reversion level of volatility, and jumps in the state variables. The special feature of our model is that the jump intensity is not affine in the conditional variance but driven by a separate process. We show that this separation of jump risk from volatility risk is needed to match the empirically weak link between the level and the slope of the implied volatility smile for S&P 500 options. 
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Metadaten
Author:Nicole Branger, Paulo Rodrigues, Christian Schlag
URN:urn:nbn:de:hebis:30:3-450645
URL:https://ssrn.com/abstract=3064658
Parent Title (English):SAFE working paper series ; No. 186
Series (Serial Number):SAFE working paper series (186)
Publisher:SAFE
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2017
Year of first Publication:2017
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2017/11/14
Tag:Asset pricing; Epstein-Zin preferences; jump risk; level and slope of implied volatility smile; stochastic volatility
Edition:This version: October 16, 2017
Pagenumber:59
HeBIS PPN:424225018
Institutes:Wirtschaftswissenschaften
House of Finance (HoF)
Center for Financial Studies (CFS)
Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:G12 Asset Pricing; Trading volume; Bond Interest Rates
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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