Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/248770 
Year of Publication: 
2021
Series/Report no.: 
Tinbergen Institute Discussion Paper No. TI 2021-086/III
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
This paper explores the contagious propagation of jumps among international stock market indices by exploiting a rich panel of stock and options data. We propose a multivariate option pricing model designed to allow for, but not superimpose, time and space amplification of jumps in option markets. We develop a semi-parametric estimation procedure employing a continuum of moments conditions in GMM with implied states. We introduce a partial-information approach to reduce the computational complexity arising in the multivariate setting, derive the asymptotic properties of our estimators, and analyze their finite-sample performance. Our empirical results reveal evidence of jump contagion in option markets, both from the US to Europe and vice versa, with the US leading the UK and standing on equal footing with Germany. We illustrate the importance of capturing jump contagion for risk management, option pricing, and scenario analysis.
Subjects: 
Jumps
Option markets
Crisis
Transmission
Spatio-temporal models
C-GMM
JEL: 
C58
G01
G15
C14
C33
G13
Document Type: 
Working Paper

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