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Studies in Nonlinear Dynamics & Econometrics

Ed. by Mizrach, Bruce


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Volume 24 (2020)

Dissecting skewness under affine jump-diffusions

Fang ZhenORCID iD: https://orcid.org/0000-0002-8386-2807 / Jin E. Zhang
Published Online: 2019-11-08 | DOI: https://doi.org/10.1515/snde-2018-0086

Abstract

This paper derives the theoretical skewness in a five-factor affine jump-diffusion model with stochastic variance and jump intensity, and jumps in prices and variances. Numerical analysis shows that all of the uncertainties in this model affect skewness. The information regarding jumps in prices is mainly reflected in the short-term skewness. The skewness for other maturities carries the information that is highly correlated with variance. Furthermore, the theoretical VIX and skewness under a simplified five-factor model are used to fit the market risk-neutral volatility and skewness sequentially. The fitting performances are better than traditional double-jump models.

This article offers supplementary material which is provided at the end of the article.

Keywords: jump-diffusion; skewness; stochastic volatility

JEL Classification: G12; G13

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About the article

Published Online: 2019-11-08


Funding Source: Central University of Finance and Economics

Award identifier / Grant number: 023063022002/010

Funding Source: National Natural Science Foundation of China

Award identifier / Grant number: 71771199

Fang Zhen has been supported by the Research Fund from the Central University of Finance and Economics (Funder Id: http://dx.doi.org/10.13039/501100002942, Project No. 023063022002/010) and the Program for Innovation Research in Central University of Finance and Economics. Jin E. Zhang has been supported by an establishment grant from the University of Otago and the National Natural Science Foundation of China grant (Funder Id: http://dx.doi.org/10.13039/501100001809, Project No. 71771199).


Citation Information: Studies in Nonlinear Dynamics & Econometrics, 20180086, ISSN (Online) 1558-3708, DOI: https://doi.org/10.1515/snde-2018-0086.

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