This paper extends the class of stochastic volatility diffusions for asset returns to encompass Poisson jumps of time-varying intensity. We find that any reasonably descriptive continuous-time model for equity-index returns must allow for discrete jumps as well as stochastic volatility with a pronounced negative relationship between return and volatility innovations. We also find that the dominant empirical characteristics of the return process appear to be priced by the option market. Our

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... sis indicates a general correspondence between the evidence extracted from daily equity-index returns and the stylized features of the corresponding options market prices. an anonymous referee; and seminar participants at Atlanta FED,