Score-Driven Modeling with Jumps: An Application to S&P500 Returns and Options 

Glad to share that the paper that I co-authored together with professors Luca Vincenzo Ballestra and Andrea Guizzardi from the University of Bologna has been published on the Journal of Financial Econometrics.
In this paper we introduce a novel score-driven model with two sources of shock, allowing for both time-varying volatility and jumps. A theoretical investigation is performed which yields sufficient conditions to ensure stationarity and ergodicity. We extend the model to consider a time-varying jump intensity. Both an in-sample and an out-of-sample analysis based on the S&P500 time series show that the proposed methodology provides excellent agreement with observed returns, outperforming more standard Generalized Autoregressive Conditional Heteroskedasticity (GARCH) specifications with jumps.
Finally, we apply our models to option pricing via risk neutralization. Results show this novel approach produces reliable implied volatility surfaces. 
The full paper is freely available here.

Proofs, the derivation of the conditional Fisher information, and two figures showing additional empirical results are available here.
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