Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/102387
Authors: 
Chen, Ke
Poon, Ser-Huang
Year of Publication: 
2013
Series/Report no.: 
Manchester Business School Working Paper 634
Abstract: 
We introduce a stochastic volatility model with self-exciting jump intensity to capture the change in pricing dynamic triggered by big negative stock returns. The stochastic variance and jump intensity, and their risk premium are estimated jointly from daily stock returns and option data over 2007-2010. The model is calibrated to cumulants implied from option prices instead of option prices directly. We find evidence that the time varying jump intensity plays a very important role in the sub-prime crisis and explained most of the risk premium, while in other calmer periods, stochastic variance accounts for most of the risk premium.
Subjects: 
Hawkes process
Volatility Surface
Volatility Risk Premium
Jump Risk Premium
Skew Premium
JEL: 
G12
G13
Document Type: 
Working Paper

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