Good volatility, bad volatility and option pricing / by Bruno Feunou and Cédric Okou.: FB3-5/2017-52E-PDF
“Advances in variance analysis permit the splitting of the total quadratic variation of a jump diffusion process into upside and downside components. Recent studies establish that this decomposition enhances volatility predictions, and highlight the upside/downside variance spread as a driver of the asymmetry in stock price distributions. To appraise the economic gain of this decomposition, we design a new and flexible option pricing model in which the underlying asset price exhibits distinct upside and downside semi-variance dynamics driven by their model-free proxies. The new model outperforms common benchmarks, especially the alternative that splits the quadratic variation into diffusive and jump components"--Abstract, p. ii.
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| Department/Agency | Bank of Canada. |
|---|---|
| Title | Good volatility, bad volatility and option pricing / by Bruno Feunou and Cédric Okou. |
| Series title | Bank of Canada staff working paper, 1701-9397 ; 2017-52 |
| Publication type | Series - View Master Record |
| Language | [English] |
| Format | Electronic |
| Electronic document | |
| Note(s) | "December 2017." Includes bibliographical references (p. 30-31). Includes abstract in French. |
| Publishing information | [Ottawa] : Bank of Canada, 2017. |
| Author / Contributor | Feunou, Bruno. Okou, Cédric. |
| Description | iii, 43 p. : charts. |
| Catalogue number |
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| Subject terms | Stock markets Assets Prices Statistical analysis |
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