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Asset pricing under information with stochastic volatility

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  • Bertram Düring

Abstract

Based on a general specification of the asset speci?c 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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  • Bertram Düring, 2009. "Asset pricing under information with stochastic volatility," Review of Derivatives Research, Springer, vol. 12(2), pages 141-167, July.
    • Handle: RePEc:kap:revdev:v:12:y:2009:i:2:p:141-167
    DOI: 10.1007/s11147-009-9031-8
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    Cited by:

    1. Bertram During & Michel Fourni'e & Christof Heuer, 2014. "High-order compact finite difference schemes for option pricing in stochastic volatility models on non-uniform grids," Papers 1404.5138, arXiv.org.

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    More about this item

    Keywords

    Pricing kernel; Stochastic volatility; Asset pricing; Option pricing; Credit spreads; G12; G13;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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