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Information about price and volatility jumps inferred from options prices
Author(s) -
Taylor Stephen J.,
Tzeng ChiFeng,
Widdicks Martin
Publication year - 2018
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.21914
Subject(s) - futures contract , jump , economics , volatility (finance) , financial economics , volatility smile , implied volatility , econometrics , jump diffusion , physics , quantum mechanics
High‐frequency jump tests are applied to the prices of both futures contracts and their options, to infer the properties of jumps in the price and volatility of the underlying asset. Empirical results for FTSE 100 contracts detect frequent jumps in futures, call, and put prices. Jumps in futures prices are more important than any jumps in volatility when the market determines option prices. The empirical evidence is consistent with futures prices following affine jump‐diffusion processes, containing either futures price jumps or contemporaneous futures price, and volatility jumps, providing jump risk premia are included in the price dynamics.