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Activity Number:
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39
- Methods in Financial Risk Assessment
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Type:
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Contributed
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Date/Time:
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Sunday, July 30, 2017 : 2:00 PM to 3:50 PM
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Sponsor:
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Section on Risk Analysis
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Abstract #323582
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View Presentation
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Title:
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Extracting Latent States from High Frequency Option Prices
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Author(s):
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Jean-Francois Begin* and Diego Amaya and Genevieve Gauthier
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Companies:
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Simon Fraser University and Wilfred Laurier University and HEC Montréal
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Keywords:
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High frequency data ;
Options ;
Jump-diffusions ;
Realized option variance ;
Particle filter
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Abstract:
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We propose the realized option variance as a new observable variable to integrate high frequency option prices in the inference of option pricing models. Using simulation and empirical studies, this paper documents the incremental information offered by this realized measure. Our empirical results show that the information contained in the realized option variance improves the inference of model variables such as the instantaneous variance and variance jumps of the S&P 500 index. Parameter estimates indicate that the risk premium breakdown between jump and diffusive risks is affected by the omission of this information.
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Authors who are presenting talks have a * after their name.
