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Asset pricing under information with stochastic volatility

  • Bertram Düring

    ()

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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File URL: http://hdl.handle.net/10.1007/s11147-009-9031-8
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Article provided by Springer in its journal Review of Derivatives Research.

Volume (Year): 12 (2009)
Issue (Month): 2 (July)
Pages: 141-167

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Handle: RePEc:kap:revdev:v:12:y:2009:i:2:p:141-167
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=102989

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  1. Charles Quanwei Cao & Gurdip S. Bakshi & Zhiwu Chen, 1997. "Empirical Performance of Alternative Option Pricing Models," Yale School of Management Working Papers ysm65, Yale School of Management.
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  3. Joshua Rosenberg & Robert F. Engle, 2000. "Empirical Pricing Kernels," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-014, New York University, Leonard N. Stern School of Business-.
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