Kaeck, Andreas, Rodrigues, Paulo and Seeger, Norman (2017) Equity index variance: evidence from flexible parametric jump–diffusion models. Journal of Banking & Finance, 83. pp. 85-103. ISSN 0378-4266

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Abstract

This paper analyzes a wide range of flexible drift and diffusion specifications of stochastic-volatility jump-diffusion models for daily S&P 500 index returns. We find that model performance is driven almost exclusively by the specification of the diffusion component whereas the drift specifications is of second-order importance. Further, the variance dynamics of non-affine models resemble popular non-parametric high-frequency estimates of variance, and their outperformance is mainly accumulated during turbulent market regimes. Finally, we show that jump diffusion models yield more reliable estimates for the expected return of variance swap contracts.

Item Type:	Article
Schools and Departments:	School of Business, Management and Economics > Business and Management
Research Centres and Groups:	Quantitative International Finance Network
Subjects:	H Social Sciences > HG Finance > HG0101 Theory. Method. Relation to other subjects > HG0106 Mathematical models H Social Sciences > HG Finance > HG4501 Investment, capital formation, speculation
Depositing User:	Andreas Kaeck
Date Deposited:	22 Jun 2017 09:35
Last Modified:	21 Dec 2018 02:00
URI:	http://srodev.sussex.ac.uk/id/eprint/68788

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