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

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Author Info

  • Manabu Asai

    (Faculty of Economics Soka University, Japan and Wharton School University of Pennsylvania)

  • Michael McAleer

    (Econometric Institute Erasmus School of Economics Erasmus University Rotterdam and Tinbergen Institute, The Netherlands and Institute of Economic Research Kyoto University, Japan and Department of Quantitative Economics Complutense University of Madrid, Spain)

Abstract

The paper proposes a general asymmetric multifactor Wishart stochastic volatility (AMWSV) di usion process which accommodates leverage, feedback e ects and mul- tifactor 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&P 500 indices show that the general AMWSV model is preferred among several nested models.

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Bibliographic Info

Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 840.

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Length: 31pages
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:kyo:wpaper:840

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

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Cited by:
  1. Manabu Asai & Michael McAleer, 2013. "A Fractionally Integrated Wishart Stochastic Volatility Model," Documentos de Trabajo del ICAE 2013-07, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.

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