Journal article
Time-Varying Crash Risk Embedded in Index Options: The Role of Stock Market Liquidity*
Abstract
Abstract We estimate a continuous-time model for the stock market index where the stochastic volatility and crash probability depend on the realized spot variance and the stock market illiquidity. We find that market illiquidity is a useful economic covariate in the modeling of time-varying stock market crash risk embedded in index options. The relative contribution of spot variance in the time-varying crash risk is weakened once the market …
Authors
Christoffersen P; Feunou B; Jeon Y; Ornthanalai C
Journal
Review of Finance, Vol. 25, No. 4, pp. 1261–1298
Publisher
Oxford University Press (OUP)
Publication Date
July 13, 2021
DOI
10.1093/rof/rfaa040
ISSN
1572-3097