Abstract

To better explain the behavior of option prices across moneyness and maturities, many existing literatures incorporate both the stochastic volatility of Heston (Rev Financ Stud, 6:327–343, 1993) and the Poisson jump of Merton (J Financ Econ, 4:125–144, 1976). See for example, Bates (Rev Financ Stud, 9:69–108, 1996, J Econometr, 94:181–238, 2000) and Bakshi (J Financ, 52:2003–2049, 1997). Huang (J Financ, 59:1405–1439, 2004) and Carr and Wu (J Financ Econom, 71:13–141,2004) further introduce a time-changed Lévy process that can be used to generate a wide class of jump-diffusion stochastic volatility models such as the variance-gamma jump model of Madan (Eur Financ Rev, 4:125–144, 1998) and the log stable model of Carr and Wu (J Financ, 58:753–777, 2003).

Copyright information

© Xiamen University Press and Springer Nature Singapore Pte Ltd. 2018

Authors and Affiliations

  1. 1.Department of Finance, School of EconomicsXiamen UniversityXiamenChina

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