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Volatility dynamics for the S&P 500: further evidence from non-affine, multi-factor jump diffusions
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posted on 2023-06-08, 12:23 authored by Andreas KaeckAndreas Kaeck, Carol AlexanderCarol AlexanderWe apply Markov chain Monte Carlo methods to time series data on S&P 500 index returns, and to its option prices via a term structure of VIX indices, to estimate 18 different affine and non-affine stochastic volatility models with one or two variance factors, and where jumps are allowed in both the price and the instantaneous volatility. The in-sample fit to the VIX term structure shows that the second (stochastic long-term volatility) factor is required to fit the VIX term structure. Out-of-sample tests on the fit to individual option prices, as well as in-sample tests, show that the inclusion of jumps is less important than allowing for non-affine dynamics. The estimation and testing periods together cover more than 21 years of daily data.
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Publication status
- Published
Journal
Journal of Banking and FinanceISSN
0378-4266Publisher
ElsevierExternal DOI
Issue
11Volume
36Page range
3110-3121Department affiliated with
- Business and Management Publications
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- No
Peer reviewed?
- Yes
Legacy Posted Date
2012-09-11Usage metrics
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