Asset pricing under information with stochastic volatility |
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Authors: | Bertram Düring |
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Institution: | 1. Institut für Analysis und Scientific Computing, Technische Universit?t Wien, 1040, Wien, Austria
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Abstract: | Based on a general specification of the asset specific pricing kernel, we develop a pricing model using an information process
with stochastic volatility. We derive analytical asset and option pricing formulas. The asset prices in this rational expectations
model exhibit crash-like, strong downward movements. The resulting option pricing formula is consistent with the strong negative
skewness and high levels of kurtosis observed in empirical studies. Furthermore, we determine credit spreads in a simple structural
model.
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Keywords: | Pricing kernel Stochastic volatility Asset pricing Option pricing Credit spreads |
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