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Asset pricing under information with stochastic volatility

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  • Düring, Bertram

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.

Suggested Citation

  • Düring, Bertram, 2008. "Asset pricing under information with stochastic volatility," CoFE Discussion Papers 08/04, University of Konstanz, Center of Finance and Econometrics (CoFE).
    • Handle: RePEc:zbw:cofedp:0804
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    References listed on IDEAS

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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;
    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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