@article{4a31fc7706b647e3b4e45a1b505ca97e,
title = "Closed-form implied volatility surfaces for stochastic volatility models with jumps",
abstract = "We develop a closed-form bivariate expansion of the shape characteristics of the implied volatility surface generated by a stochastic volatility model with jumps in returns. We use the expansion to analyse the impact on the shape of the implied volatility surface of the various features of the stochastic volatility model and to determine which stochastic volatility models are capable of reproducing the observed characteristics of the implied volatility market data.",
keywords = "Closed-form expansion, Implied volatility surface, Jumps, Model selection, Option pricing, Stochastic volatility",
author = "Yacine A{\"i}t-Sahalia and Chenxu Li and Li, {Chen Xu}",
note = "Funding Information: We are grateful to the Editor and two anonymous referees for very helpful comments and suggestions. We also benefited from the comments of participants at the 2017 Stanford-Tsinghua-PKU Conference in Quantitative Finance, the 2017 Fifth Asian Quantitative Finance Conference, the 2017 BCF-QUT-SJTU-SMU Conference on Financial Econometrics, the Second PKU-NUS Annual International Conference on Quantitative Finance and Economics, the 2017 Asian Meeting of the Econometric Society, the Third Annual Volatility Institute Conference at NYU Shanghai, the 2018 Review of Economic Studies 30th Anniversary Conference and the 2018 FERM Conference. The research of Chenxu Li was supported by the Guanghua School of Management, the Center for Statistical Science , and the Key Laboratory of Mathematical Economics and Quantitative Finance (Ministry of Education) at Peking University , as well as the National Natural Science Foundation of China (Grant 71671003 ). Chen Xu Li is grateful for a graduate scholarship and funding support from the Graduate School of Peking University as well as support from the Bendheim Center for Finance at Princeton University and the School of Business at Renmin University of China . All authors contributed equally. Funding Information: We are grateful to the Editor and two anonymous referees for very helpful comments and suggestions. We also benefited from the comments of participants at the 2017 Stanford-Tsinghua-PKU Conference in Quantitative Finance, the 2017 Fifth Asian Quantitative Finance Conference, the 2017 BCF-QUT-SJTU-SMU Conference on Financial Econometrics, the Second PKU-NUS Annual International Conference on Quantitative Finance and Economics, the 2017 Asian Meeting of the Econometric Society, the Third Annual Volatility Institute Conference at NYU Shanghai, the 2018 Review of Economic Studies 30th Anniversary Conference and the 2018 FERM Conference. The research of Chenxu Li was supported by the Guanghua School of Management, the Center for Statistical Science, and the Key Laboratory of Mathematical Economics and Quantitative Finance (Ministry of Education) at Peking University, as well as the National Natural Science Foundation of China (Grant 71671003). Chen Xu Li is grateful for a graduate scholarship and funding support from the Graduate School of Peking University as well as support from the Bendheim Center for Finance at Princeton University and the School of Business at Renmin University of China. All authors contributed equally. Publisher Copyright: {\textcopyright} 2020 Elsevier B.V.",
year = "2021",
month = may,
doi = "10.1016/j.jeconom.2020.07.006",
language = "English (US)",
volume = "222",
pages = "364--392",
journal = "Journal of Econometrics",
issn = "0304-4076",
publisher = "Elsevier BV",
number = "1",
}