Jump Contagion Among Stock Market Indices. Evidence from Option Markets

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Date:
15.10.2020
Time:
18:00
Organizer:
Department of Economics
Speaker:
Evgenii Vladimirov

The City Economic Seminar organized by EUSP, HSE, and POMI continues its work online. On October 15, at 18.00, Evgenii Vladimirov from the University of Amsterdam will be presenting an option pricing model with information about the mutual influence of stock markets in different countries. The title of his report is Jump Contagion among Stock Market Indices: Evidence from Option Markets.

Abstract: This paper proposes a multivariate option pricing model with a mutually exciting jump component, also known as a multivariate Hawkes process, inducing time-series clustering of jumps in single markets and cross-sectional jump contagion among multiple markets. We formulate our model under both the physical and risk-neutral probability measures in an international context to jointly exploit information from the time series of stock market indices and their option price panels. For this model, we develop a semi-parametric estimation procedure based on the implied-state generalized method of moments employing a continuum of moment conditions obtained from the characteristic function of the state vector. We design a partial-information setting that allows us to reduce the computational burden arising in the multivariate set-up. Furthermore, we derive the asymptotic properties of our estimators and discuss in detail the calculation of the standard errors. Finally, we apply the univariate and bivariate versions of our model to a rich panel of high-frequency information on the FTSE 100 and DAX 30 stock market indices. Our findings suggest the presence of self-excitation effects in both indices and asymmetric jump contagion driven by the UK market.

The seminar will be held via Zoom application. To receive access, please send a request to spb.economic.seminar@gmail.com (please indicate your full name and occupation/place of study). Also, indicate your full name when entering Zoom. The number of participants is limited (100 people), join the seminar in 5–10 minutes.