FSS-DECO Seminar: “Characteristic Function-based Factor Modelling of Affine Jump Diffusions Using Options” by Prof. Herman Peter BOSWIJK, 16/10/2024, 14:00 @E21B-G002

社會科學學院經濟學系講座：Herman Peter BOSWIJK教授，16/10/2024，14:00 @E21B-G002

Seminar on Economics

 

Characteristic Function-based Factor Modelling of Affine Jump Diffusions Using Options 

 

Speaker: Prof. Herman Peter BOSWIJK

Professor of Financial Econometrics and Vice-Dean / Chair

Amsterdam School of Economics

University of Amsterdam

 

Abstract:

We develop a framework to analyse affine jump diffusions using factor modelling techniques, offering a novel method to study which and how many risk factors drive the price process of a single asset. We use information contained in options to construct observations on the characteristic function of the returns on the underlying asset, without having to specify a parametric model. We show how to form a linear factor model out of these observations. Our asymptotic framework is one in which the number of observed options, of varying strikes, tends to infinity. We prove asymptotic normality of the factor model, and provide a feasible central limit theorem which can be used for testing. In addition, we prove that diagnostic criteria based on the eigenvalues of the sample covariance matrix of the constructed factor model are able to consistently estimate the number of factors, and that principal component analysis is able to extract these factors. An empirical application suggests that the main factor driving the S&P 500 returns is a stochastic variance process, which explains 97% of the variation in the factor model.

 

Date: 16 October 2024 (Wednesday)

Time : 14:00-15:15

Language: English

Venue: E21B-G002

 

All are welcome!

Department of Economics
Faculty of Social Sciences
University of Macau

Follow us: