Equilibrium asset and option pricing under jump-diffusion model with stochastic volatility

Xinfeng Ruan; Wenli Zhu; Shuang Li; Jiexiang Huang

doi:10.1155/2013/780542

Equilibrium asset and option pricing under jump-diffusion model with stochastic volatility

Xinfeng Ruan^*, Wenli Zhu, Shuang Li, Jiexiang Huang

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

2 Citations (Scopus)

Abstract

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.

Original language	English
Article number	780542
Journal	Abstract and Applied Analysis
Volume	2013
DOIs	https://doi.org/10.1155/2013/780542
Publication status	Published - 2013
Externally published	Yes

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title = "Equilibrium asset and option pricing under jump-diffusion model with stochastic volatility",

abstract = "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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AU - Zhu, Wenli

AU - Li, Shuang

AU - Huang, Jiexiang

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N2 - 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.

AB - 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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DO - 10.1155/2013/780542

M3 - Article

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SN - 1085-3375

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Equilibrium asset and option pricing under jump-diffusion model with stochastic volatility

Abstract

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