Please note, due to essential maintenance online purchasing will be unavailable between 08:00 and 12:00 (BST) on 24th February 2019. We apologise for any inconvenience.
Advances in variance analysis permit the splitting of the total quadratic variation of a jump-diffusion process into upside and downside components. Recent studies establish that this decomposition enhances volatility predictions and highlight the upside/downside variance spread as a driver of the asymmetry in stock price distributions. To appraise the economic gain of this decomposition, we design a new and flexible option pricing model in which the underlying asset price exhibits distinct upside and downside semivariance dynamics driven by the model-free proxies of the variances. The new model outperforms common benchmarks, especially the alternative that splits the quadratic variation into diffusive and jump components.
Email your librarian or administrator to recommend adding this journal to your organisation's collection.