Option-Implied Intrahorizon Value at Risk

Abstract

In this paper, we theoretically and empirically study the intrahorizon value at risk (iVaR) in a general jump-diffusion setting. We propose a new class of models of asset returns, the displaced mixed exponential model, which can arbitrarily closely approximate finite and infinite activity Lévy processes. We then derive analytical results for the iVaR and disentangle, in a theoretically consistent way, the jump and diffusion contributions to the intrahorizon risk. We estimate historical and option-implied value at risk and iVaR for sev Show more