Upside and downside correlated jump risk premia of currency options and expected returns

He, Jie-Cao; Chang, Hsing-Hua; Chen, Ting-Fu; Lin, Shih-Kuei

doi:10.1186/s40854-023-00493-3

Financial Innovation

Table 5 Pricing performance of EUR/USD options

From: Upside and downside correlated jump risk premia of currency options and expected returns

	In-sample					Out-of-sample
	1-Month	3-Month	6-Month	12-Month	Average	1-Month	3-Month	6-Month	12-Month	Average
10-delta
GK	0.000350	0.000328	0.000350	0.000434	0.000366	0.000564	0.000491	0.000469	0.000529	0.000513
CB	0.001074	0.001147	0.001582	0.001150	0.001239	0.001179	0.001192	0.001527	0.001083	0.001245
CB–ISJ	0.000091	0.000087	0.000087	0.000102	0.000092	0.000232	0.000176	0.000149	0.000139	0.000174
CB–CSJ	0.000102	0.000093	0.000120	0.000206	0.000131	0.000241	0.000179	0.000172	0.000257	0.000212
CB–CAJ	0.000096	0.000096	0.000100	0.000131	0.000106	0.000239	0.000193	0.000156	0.000181	0.000192
25-delta
GK	0.000395	0.000371	0.000393	0.000429	0.000397	0.000603	0.000525	0.000504	0.000512	0.000536
CB	0.001175	0.001263	0.001787	0.001404	0.001407	0.001283	0.001309	0.001739	0.001341	0.001418
CB–ISJ	0.000076	0.000078	0.000082	0.000093	0.000082	0.000221	0.000166	0.000140	0.000126	0.000163
CB–CSJ	0.000091	0.000081	0.000109	0.000202	0.000121	0.000229	0.000166	0.000157	0.000251	0.000201
CB–CAJ	0.000081	0.000079	0.000091	0.000129	0.000095	0.000227	0.000173	0.000143	0.000176	0.000180
50-delta
GK	0.000411	0.000385	0.000419	0.000429	0.000411	0.000633	0.000549	0.000532	0.000506	0.000555
CB	0.001213	0.001323	0.001817	0.001428	0.001445	0.001329	0.001361	0.001770	0.001367	0.001457
CB–ISJ	0.000065	0.000058	0.000056	0.000063	0.000060	0.000224	0.000152	0.000117	0.000096	0.000147
CB–CSJ	0.000086	0.000058	0.000082	0.000170	0.000099	0.000234	0.000149	0.000132	0.000223	0.000185
CB–CAJ	0.000069	0.000056	0.000063	0.000102	0.000072	0.000230	0.000155	0.000117	0.000151	0.000163
75-delta
GK	0.000386	0.000381	0.000451	0.000462	0.000420	0.000639	0.000570	0.000576	0.000541	0.000581
CB	0.001157	0.001333	0.001675	0.001235	0.001350	0.001285	0.001362	0.001620	0.001168	0.001359
CB–ISJ	0.000072	0.000053	0.000043	0.000044	0.000053	0.000255	0.000161	0.000113	0.000083	0.000153
CB–CSJ	0.000102	0.000052	0.000077	0.000140	0.000093	0.000271	0.000158	0.000134	0.000203	0.000191
CB–CAJ	0.000075	0.000056	0.000049	0.000081	0.000065	0.000260	0.000169	0.000110	0.000136	0.000169
90-delta
GK	0.000434	0.000549	0.000752	0.000866	0.000650	0.000729	0.000775	0.000900	0.000955	0.000840
CB	0.001146	0.001482	0.001682	0.001216	0.001382	0.001288	0.001503	0.001618	0.001141	0.001387
CB–ISJ	0.000174	0.000209	0.000247	0.000272	0.000225	0.000383	0.000334	0.000330	0.000322	0.000343
CB–CSJ	0.000211	0.000206	0.000287	0.000353	0.000264	0.000406	0.000331	0.000358	0.000431	0.000381
CB–CAJ	0.000174	0.000220	0.000249	0.000304	0.000237	0.000388	0.000354	0.000323	0.000369	0.000358

This table lists the MSEs of different maturity, delta levels, and models with in-sample and out-of-sample results for the currency pair EUR/USD. The left panel shows the in-sample test results and the right panel shows the out-of-sample test results. The bold text shows the results of the best-performing model among the five models with the same maturity and delta level

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