Equilibrium Asset and Option Pricing under Jump-Diffusion Model with Stochastic Volatility | Zendy

Xinfeng Ruan | Zendy; Wenli Zhu | Zendy; Shuang Li | Zendy; Jiexiang Huang | Zendy

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Equilibrium Asset and Option Pricing under Jump-Diffusion Model with Stochastic Volatility

Author(s) -

Xinfeng Ruan,

Wenli Zhu,

Shuang Li,

Jiexiang Huang

Publication year - 2013

Publication title -

abstract and applied analysis

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.228

H-Index - 56

eISSN - 1687-0409

pISSN - 1085-3375

DOI - 10.1155/2013/780542

Subject(s) - jump diffusion , stochastic volatility , stochastic discount factor , mathematics , valuation of options , econometrics , jump , valuation (finance) , volatility (finance) , capital asset pricing model , implied volatility , economics , finance , physics , quantum mechanics

We study the equity premium and option pricing under jump-diffusion model with stochastic volatility based on the model in Zhang et al. 2012. We obtain the pricing kernel which acts like the physical and risk-neutral densities and the moments in the economy. Moreover, the exact expression of option valuation is derived by the Fourier transformation method. We also discuss the relationship of central moments between the physical measure and the risk-neutral measure. Our numerical results show that our model is more realistic than the previous model

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