https://scholars.lib.ntu.edu.tw/handle/123456789/414917
Title: | The impact of jump dynamics on the predictive power of option-implied densities | Authors: | Wang Y.-H. | Issue Date: | 2009 | Journal Volume: | 16 | Journal Issue: | 3 | Start page/Pages: | 9-22 | Source: | Journal of Derivatives | Abstract: | This article examines whether incorporating jumps with stochastic volatility can improve the predictive power of option-implied densities of the FTSE 100 index. A general double-jump model is used to jit the market prices o f options and to estimate "risk-neutral" densities. "Real-world" densities are then converted from their risk-neutral form by means of alternative statistical calibrations. Both the risk-neutral and real-world densities are evaluated over jive forecast horizons using two different tests. The empirical results indicate that adding jumps into the price and/or volatility processes not only substantially lowers the fitting errors of option prices, but also improves the predictive power of risk-neutral densities. Furthermore, satisfactory density prediction was consistently provided by the real-world densities, which were not dependent on the addition of jumps, the approach used to construct the densities, or the prediction horizon. |
URI: | https://scholars.lib.ntu.edu.tw/handle/123456789/414917 | ISSN: | 10741240 | DOI: | 10.3905/JOD.2009.16.3.009 |
Appears in Collections: | 財務金融學系 |
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