Peter Christoffersen

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Time-Varying Crash Risk: The Role of Stock Market Liquidity

We estimate a continuous-time model with stochastic volatility and dynamic crash probability for the S&P 500 index and find that market illiquidity dominates other factors in explaining the stock market crash risk. While the crash probability is time-varying, its dynamic depends only weakly on return variance once we include market illiquidity as an economic variable in the model.

Option Valuation with Observable Volatility and Jump Dynamics

Staff Working Paper 2015-39 Peter Christoffersen, Bruno Feunou, Yoontae Jeon
Under very general conditions, the total quadratic variation of a jump-diffusion process can be decomposed into diffusive volatility and squared jump variation. We use this result to develop a new option valuation model in which the underlying asset price exhibits volatility and jump intensity dynamics.
Content Type(s): Staff Research, Staff Working Papers Topic(s): Asset Pricing JEL Code(s): G, G1, G12

The Economic Value of Realized Volatility: Using High-Frequency Returns for Option Valuation

Many studies have documented that daily realized volatility estimates based on intraday returns provide volatility forecasts that are superior to forecasts constructed from daily returns only. We investigate whether these forecasting improvements translate into economic value added.

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