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Option-Implied Intra-Horizon Value-at-Risk


Leippold, Markus; Vasiljevic, Nikola (2018). Option-Implied Intra-Horizon Value-at-Risk. SSRN 2804702, University of Zurich.

Abstract

We study the intra-horizon value at risk (iVaR) in a general jump diffusion setup and propose a new model of asset returns called displaced mixed-exponential model, which can arbitrarily closely approximate finite-activity jump-diffusions and completely monotone Levy processes. We derive analytical results for the iVaR and disentangle the risk contribution of jumps from diffusion. Estimating the iVaR for several popular jump models using on S&P 100 option data, we find that option-implied estimates are much more responsive to market changes relative to their historical counterparts. Moreover, disentangling jumps from diffusion, jump account for about 90 percent of iVaR on average.

Abstract

We study the intra-horizon value at risk (iVaR) in a general jump diffusion setup and propose a new model of asset returns called displaced mixed-exponential model, which can arbitrarily closely approximate finite-activity jump-diffusions and completely monotone Levy processes. We derive analytical results for the iVaR and disentangle the risk contribution of jumps from diffusion. Estimating the iVaR for several popular jump models using on S&P 100 option data, we find that option-implied estimates are much more responsive to market changes relative to their historical counterparts. Moreover, disentangling jumps from diffusion, jump account for about 90 percent of iVaR on average.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:2018
Deposited On:18 Jun 2018 09:20
Last Modified:30 Jan 2020 12:28
Series Name:SSRN
OA Status:Green
Free access at:Official URL. An embargo period may apply.
Publisher DOI:https://doi.org/10.2139/ssrn.2804702
Other Identification Number:merlin-id:16437

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