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 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.
Author: | Nicole BrangerORCiDGND, Paulo Rodrigues, Christian SchlagORCiDGND |
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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 (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 |
Page Number: | 59 |
HeBIS-PPN: | 424225018 |
Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |