Level and Slope of Volatility Smiles in Long-Run Risk Models
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Datum
2017-10-16
Autor
Branger, Nicole
Rodrigues, Paulo
Schlag, Christian
SAFE No.
186
Metadata
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Zusammenfassung
We propose a long-run risk model with stochastic volatility, a time-varying mean reversion level of volatility, and jumps in the state variables. The special feature of our model is that the jump intensity is not affine in the conditional variance but driven by a separate process. We show that this separation of jump risk from volatility risk is needed to match the empirically weak link between the level and the slope of the implied volatility smile for S&P 500 options.
Forschungsbereich
Financial Markets
Systemic Risk Lab
Systemic Risk Lab
Schlagworte
asset pricing, epstein-zin preferences, jump risk, stochastic volatility, level and slope of implied volatility smile
JEL-Klassifizierung
G12
Forschungsdaten
Thema
Macro Finance
Saving and Borrowing
Consumption
Saving and Borrowing
Consumption
Beziehungen
1
Publikationstyp
Working Paper
Link zur Publikation
Collections
- LIF-SAFE Working Papers [334]