Empirical Performance of the Czech and Hungarian Index Options under Jump

Abstract: This paper analyses Czech and Hungarian index options that are traded on the Austrian Futures and Options Exchange. We find that the Poisson jump-diffusion and not the GARCH (1,1) process lends statistical support for the data description.We estimate that approximately four-fifth of 4 percent underpricing (for the Czech Index) and 18 percent overpricing (for the Hungarian Index) biases reported for the short term out-of-the-money call options can be explained by the Jump option pricing model. However, we question whether the mispricings from the jump model are operational, especially, in these emerging financial markets.;