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 6 Pricing performance of GBP/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	0.000830	0.000814	0.000722	0.000600	0.000741	0.001244	0.001007	0.000853	0.000692	0.000949
CB	0.001670	0.000988	0.001453	0.001242	0.001338	0.001809	0.001040	0.001462	0.001266	0.001394
CB–ISJ	0.000203	0.000413	0.036214	0.025415	0.015561	0.000414	0.000520	0.033950	0.024638	0.014880
CB–CSJ	0.000409	0.000528	0.000704	0.000915	0.000639	0.000559	0.000589	0.000763	0.000983	0.000723
CB–CAJ	0.000399	0.000495	0.000556	0.000755	0.000551	0.000570	0.000586	0.000601	0.000823	0.000645
25-delta
GK	0.000904	0.000919	0.000848	0.000713	0.000846	0.001330	0.001120	0.000978	0.000796	0.001056
CB	0.001770	0.001087	0.001606	0.001461	0.001481	0.001912	0.001133	0.001616	0.001483	0.001536
CB–ISJ	0.000197	0.000410	0.036412	0.025534	0.015638	0.000427	0.000526	0.034061	0.024750	0.014941
CB–CSJ	0.000424	0.000548	0.000741	0.000969	0.000670	0.000579	0.000603	0.000797	0.001028	0.000752
CB–CAJ	0.000414	0.000519	0.000581	0.000807	0.000580	0.000592	0.000601	0.000627	0.000866	0.000671
50-delta
GK	0.000885	0.000898	0.000837	0.000690	0.000828	0.001354	0.001126	0.000980	0.000776	0.001059
CB	0.001779	0.001084	0.001530	0.001385	0.001444	0.001923	0.001126	0.001535	0.001409	0.001498
CB–ISJ	0.000183	0.000368	0.036189	0.025489	0.015557	0.000452	0.000500	0.033851	0.024692	0.014874
CB–CSJ	0.000449	0.000537	0.000696	0.000935	0.000654	0.000617	0.000594	0.000756	0.000992	0.000740
CB–CAJ	0.000437	0.000510	0.000543	0.000762	0.000563	0.000630	0.000594	0.000591	0.000819	0.000659
75-delta
GK	0.000788	0.000824	0.000786	0.000652	0.000763	0.001316	0.001097	0.000954	0.000750	0.001029
CB	0.001692	0.001051	0.001309	0.001128	0.001295	0.001834	0.001083	0.001293	0.001156	0.001342
CB–ISJ	0.000215	0.000369	0.035539	0.025311	0.015359	0.000535	0.000522	0.033317	0.024484	0.014714
CB–CSJ	0.000527	0.000575	0.000655	0.000911	0.000667	0.000708	0.000640	0.000725	0.000968	0.000760
CB–CAJ	0.000511	0.000548	0.000532	0.000716	0.000577	0.000722	0.000640	0.000586	0.000775	0.000681
90-delta
GK	0.000798	0.000973	0.001055	0.001042	0.000967	0.001395	0.001302	0.001258	0.001162	0.001279
CB	0.001709	0.001254	0.001352	0.001181	0.001374	0.001853	0.001281	0.001308	0.001215	0.001414
CB–ISJ	0.000397	0.000612	0.034955	0.025407	0.015343	0.000773	0.000784	0.032937	0.024553	0.014762
CB–CSJ	0.000750	0.000841	0.000888	0.001200	0.000919	0.000948	0.000925	0.000973	0.001265	0.001028
CB–CAJ	0.000730	0.000813	0.000810	0.000979	0.000833	0.000962	0.000925	0.000873	0.001047	0.000952

This table lists the MSEs of different maturity, delta levels, and models with in-sample and out-of-sample results for the currency pair GBP/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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