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SHORT‐MATURITY OPTIONS AND JUMP MEMORY
Author(s) -
Arnold Tom,
Hilliard Jimmy E.,
Schwartz Adam
Publication year - 2007
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.2007.00222.x
Subject(s) - jump , event (particle physics) , jump diffusion , attenuation , series (stratigraphy) , crash , econometrics , mathematics , statistical physics , computer science , geology , physics , astrophysics , paleontology , quantum mechanics , optics , programming language
We investigate jump memory using an extensive database of short‐term S&P 500 index options. Jump memory refers to the attenuation of the implied jump intensity and magnitude parameters following a crash event. We use a genetic algorithm to obtain a time series of implied parameter estimates and posit behavioral and rational explanations for parameter attenuation following a crash event. We find that a nested form of the jump‐diffusion model sharpens the remaining parameter estimates and has a negligible effect on pricing accuracy.