FIN-03-016 |
NYU Stern School of Business |
May 2003
Jing-zhi Huang and Liuren Wu
ABSTRACT
We analyze the specifications of option pricing models based on time-changed Levy processes.
We classify option pricing models based on the sucture of the jump component in the underlying
return process, the source of stochastic volatility, and the specification of the volatility process itself.
Our estimation of a variety of model specifications indicates that to better capture the behavior of
the S&P 500 index options, we must incorporate a high frequency jump component in the return
process and generate stochastic volatilities from two different sources, the jump component and the
diffusion component.
Jing-zhi Huang
Institution: Stern School of Business, New York University, 44 West 4th Seet, New York, NY 10012
Telephone: (212) 998-0300
Fax: (212) 995-4233
Email: jhuang0@stern.nyu.edu
Homepage:http://www.stern.nyu.edu/~jhuang0
Liuren Wu
Institution: Graduate School of Business, Fordham University, 113 West 60th Seet, New York, NY 10023
Telephone: (212) 636-6117
Fax: (212) 765-5573
Email: wu@fordham.edu
Homepage:www.bnet.fordham.edu/lwu
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