Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2021-09-23
Number: 21-086/III
Author-Name: H. Peter Boswijk
Author-Workplace-Name: University of Amsterdam
Author-Name: Roger J.A. Laeven
Author-Workplace-Name: University of Amsterdam
Author-Name: Andrei Lalu
Author-Workplace-Name: University of Amsterdam
Author-Name: Evgenii Vladimirov
Author-Workplace-Name: University of Amsterdam
Title: Jump Contagion among Stock Market Indices: Evidence from Option Markets
Abstract: This paper explores the contagious propagation of jumps among international stock
market indices by exploiting a rich panel of stock and options data. We propose a multivariate option pricing model designed to allow for, but not superimpose, time and space amplification of jumps in option markets. We develop a semi-parametric estimation procedure employing a continuum of moments conditions in GMM with implied states. We introduce a partial-information approach to reduce the computational complexity arising in the multivariate setting, derive the asymptotic properties of our estimators, and analyze their finite-sample performance. Our empirical results reveal evidence of jump contagion in option markets, both from the US to Europe and vice versa, with the US leading the UK and standing on equal footing with Germany. We illustrate the importance of capturing jump contagion for risk management, option pricing, and scenario analysis.
Classification-JEL: C58, G01, G15
Keywords: Jumps, Option markets, Crisis, Transmission, Spatio-temporal models, C-GMM
File-URL: https://papers.tinbergen.nl/21086.pdf
File-Format: application/pdf
File-Size: 2.506.170 bytes
Handle: RePEc:tin:wpaper:20210086