What is it about?
An adverse slump sends the market into turmoil, with aftershocks coming in close succession.
Featured Image
Why is it important?
We characterize a new source of risk and study its pricing in the joint equity and derivatives markets. A Hawkes jump-diffusion model capturing the self-exciting market disruptions leads to a resolution of the skew-response puzzle.
Perspectives
Self-excitation of rare events had been powerfully revealed after the financial crisis of 2008. It results in a revision of the fundamental equation underlying the classical Black-Scholes option pricing paradigm. And it shows the promise to better explain the time series and cross sectional option prices.
Dan Luo
Read the Original
This page is a summary of: The Pricing of Jump Propagation: Evidence from Spot and Options Markets, Management Science, December 2017, INFORMS,
DOI: 10.1287/mnsc.2017.2885.
You can read the full text:
Contributors
The following have contributed to this page
