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Leverage and Feedback Effects on Multifactor Wishart Stochastic Volatility for Option Pricing

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  • Manabu Asai

    (Soka University, Japan)

  • Michael McAleer

    (Erasmus University Rotterdam, The Netherlands; Kyoto University, Japan; Complutense University of Madrid, Spain)

Abstract

The paper proposes a general asymmetric multifactor Wishart stochastic volatility (AMWSV) diffusion process which accommodates leverage, feedback effects and multifactor for the covariance process. The paper gives the closed-form solution for the conditional and unconditional Laplace transform of the AMWSV models. The paper also suggests estimating the AMWSV model by the generalized method of moments using information not only of stock prices but also of realized volatilities and co-volatilities. The empirical results for the bivariate data of the NASDAQ 100 and S&P500 indices show that the general AMWSV model is preferred among several nested models.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 13-003/III.

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Date of creation: 07 Jan 2013
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Handle: RePEc:dgr:uvatin:20130003

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Web page: http://www.tinbergen.nl

Related research

Keywords: Multivariate Stochastic Volatility; Wishart Process; Leverage Effects; Feedback Effects; Multifactor Model; Option Pricing;

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References

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  1. Gourieroux, Christian & Sufana, Razvan, 2010. "Derivative Pricing With Wishart Multivariate Stochastic Volatility," Journal of Business & Economic Statistics, American Statistical Association, vol. 28(3), pages 438-451.
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Cited by:
  1. Manabu Asai & Michael McAleer, 2013. "A Fractionally Integrated Wishart Stochastic Volatility Model," Documentos del Instituto Complutense de Análisis Económico 2013-07, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales.

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