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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title What's Beneath the Surface? Option Pricing with Multifrequency Latent States
Organization Unit
  • Laurent E Calvet
  • Adlai J Fisher
  • Markus Leippold
  • English
Institution University of Zurich
Series Name HEC Paris Research Paper
Number 969/2013
Date 2013
Abstract Text We introduce a tractable class of non-affine price processes with multifrequency stochastic volatility and jumps. The specications require few xed parameters and deliver fast option pricing. One key ingredient is a tight link between jumps and volatility regimes, as asset pricing theory suggests. Empirically, the model matches implied volatility surfaces and their dynamics without requiring parameter recalibration. A variety of metrics show improvements over traditional benchmarks in- and out-of-sample.
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Official URL
Digital Object Identifier 10.1016/j.jeconom.2015.02.034
Other Identification Number merlin-id:8836
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Keywords Economics and Econometrics, Applied Mathematics