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Empirical Performance of the Czech and Hungarian Index Options under Jump

Author

Listed:
  • Lee, Gabriel S.

    (Institute for Advanced Studies, Vienna)

  • Boss, Michael

    (Oesterreichische Nationalbank)

  • Klisz, Chris

    (Academia Istropolitana Nova)

Abstract

This paper analyses Czech and Hungarian index options that are traded on the Austrian Futures and Options Exchange. We find that the Poisson jump-diffusion and not the GARCH (1,1) process lends statistical support for the data description. We estimate that approximately four-fifth of 4 percent underpricing (for the Czech Index) and 18 percent overpricing (for the Hungarian Index) biases reported for the short term out-of-the-money call options can be explained by the Jump option pricing model. However, we question whether the mispricings from the jump model are operational, especially, in these emerging financial markets.

Suggested Citation

  • Lee, Gabriel S. & Boss, Michael & Klisz, Chris, 2001. "Empirical Performance of the Czech and Hungarian Index Options under Jump," Economics Series 91, Institute for Advanced Studies.
    • Handle: RePEc:ihs:ihsesp:91
    as

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    File URL: https://irihs.ihs.ac.at/id/eprint/1317
    File Function: First version, 2001
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Leptokurtosis; Poisson jump-diffusion; GARCH; Equity index;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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