An Empirical Investigation of Continuous-Time Equity Return Models

48 Pages Posted: 29 Sep 2001 Last revised: 4 Oct 2001

See all articles by Torben G. Andersen

Torben G. Andersen

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER); Aarhus University - CREATES

Luca Benzoni

Federal Reserve Bank of Chicago - Research Department

Jesper Lund

Multiple version iconThere are 2 versions of this paper

Date Written: October 2001

Abstract

This paper extends the class of stochastic volatility diffusions for asset returns to encompass Poisson jumps of time-varying intensity. We find that any reasonably descriptive continuous-time model for equity-index returns must allow for discrete jumps as well as stochastic volatility with a pronounced negative relationship between return and volatility innovations. We also find that the dominant empirical characteristics of the return process appear to be priced by the option market. Our analysis indicates a general correspondence between the evidence extracted from daily equity-index returns and the stylized features of the corresponding options market prices.

Suggested Citation

Andersen, Torben G. and Benzoni, Luca and Lund, Jesper, An Empirical Investigation of Continuous-Time Equity Return Models (October 2001). NBER Working Paper No. w8510. Available at SSRN: https://ssrn.com/abstract=285640

Torben G. Andersen (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Aarhus University - CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Luca Benzoni

Federal Reserve Bank of Chicago - Research Department ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312-322-8499 (Phone)

HOME PAGE: http://lbenzoni.frbchi.googlepages.com/

No contact information is available for Jesper Lund

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