The Impact of Overnight Periods on Option Pricing

27 Pages Posted: 22 Jul 2004

See all articles by Mark-Jan Boes

Mark-Jan Boes

VU University Amsterdam

Feike C. Drost

Tilburg University - Center for Economic Research (CentER)

Bas J. M. Werker

Tilburg University - Center for Economic Research (CentER)

Date Written: August 2, 2004

Abstract

This paper investigates the effect of overnight trading halts on option prices. We model overnight returns by a pure jump process. Intraday returns follow the literature's standard models by allowing for stochastic volatility and a random jump component. We find that neither the intraday random jumps nor the overnight jumps are able to empirically describe all features of asset prices. We therefore conclude that both random jumps during the day and overnight jumps are important in explaining option prices, where the latter account for about one-third of total jump risk.

Keywords: Derivative pricing, jump diffusion, stochastic volatility

JEL Classification: G11, G13

Suggested Citation

Boes, Mark-Jan and Drost, Feike C. and Werker, Bas J.M., The Impact of Overnight Periods on Option Pricing (August 2, 2004). Available at SSRN: https://ssrn.com/abstract=567053 or http://dx.doi.org/10.2139/ssrn.567053

Mark-Jan Boes (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Feike C. Drost

Tilburg University - Center for Economic Research (CentER) ( email )

Econometrics and Finance Group
P.O. Box 90153
5000 LE Tilburg
Netherlands
+31 13 466 3038 (Phone)

Bas J.M. Werker

Tilburg University - Center for Economic Research (CentER) ( email )

Econometrics and Finance Group
5000 LE Tilburg
Netherlands

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
147
Abstract Views
2,004
rank
219,676
PlumX Metrics