Specification analysis of option pricing models based on time-changed Lévy processes

Jing Zhi Huang, Liuren Wu

Research output: Contribution to journalReview article

138 Scopus citations


We analyze the specifications of option pricing models based on time-changed Lévy processes. We classify option pricing models based on the structure of the jump component in the underlying return process, the source of stochastic volatility, and the specification of the volatility process itself. Our estimation of a variety of model specifications indicates that to better capture the behavior of the S&P 500 index options, we need to incorporate a high frequency jump component in the return process and generate stochastic volatilities from two different sources, the jump component and the diffusion component.

Original languageEnglish (US)
Pages (from-to)1405-1440
Number of pages36
JournalJournal of Finance
Issue number3
Publication statusPublished - Jun 2004


All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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