Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171320
Authors: 
Branger, Nicole
Rodrigues, Paulo
Schlag, Christian
Year of Publication: 
2017
Series/Report no.: 
SAFE Working Paper Series 186
Abstract: 
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.
Subjects: 
asset pricing
Epstein-Zin preferences
jump risk
stochastic volatility
level and slope of implied volatility smile
JEL: 
G12
Document Type: 
Working Paper

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