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Equilibrium Asset and Option Pricing under Jump‐Diffusion Model with Stochastic Volatility

Author

Listed:
  • Xinfeng Ruan
  • Wenli Zhu
  • Shuang Li
  • Jiexiang Huang

Abstract

We study the equity premium and option pricing under jump‐diffusion model with stochastic volatility based on the model in Zhang et al. 2012. We obtain the pricing kernel which acts like the physical and risk‐neutral densities and the moments in the economy. Moreover, the exact expression of option valuation is derived by the Fourier transformation method. We also discuss the relationship of central moments between the physical measure and the risk‐neutral measure. Our numerical results show that our model is more realistic than the previous model.

Suggested Citation

  • Xinfeng Ruan & Wenli Zhu & Shuang Li & Jiexiang Huang, 2013. "Equilibrium Asset and Option Pricing under Jump‐Diffusion Model with Stochastic Volatility," Abstract and Applied Analysis, John Wiley & Sons, vol. 2013(1).
    • Handle: RePEc:wly:jnlaaa:v:2013:y:2013:i:1:n:780542
    DOI: 10.1155/2013/780542
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    References listed on IDEAS

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