Dampened power law: Reconciling the tail behavior of financial security returns

被引:39
作者
Wu, LR [1 ]
机构
[1] CUNY Bernard M Baruch Coll, Zicklin Sch Business, New York, NY 10010 USA
关键词
D O I
10.1086/500681
中图分类号
F [经济];
学科分类号
02 ;
摘要
This article proposes a stylized model that reconciles several seemingly conflicting findings on financial security returns and option prices. The model is based on a pure jump Levy process, wherein the jump arrival rate obeys a power law dampened by an exponential function. The model allows for different degrees of dampening for positive and negative jumps and also for different pricing for upside and downside market risks. Calibration of the model to the S&P 500 index shows that the market charges only a moderate premium on upward index movements but the maximally allowable premium on downward index movements.
引用
收藏
页码:1445 / 1473
页数:29
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