Asset Pricing under Information with Stochastic Volatility

24 Pages Posted: 8 Aug 2008

See all articles by Bertram Düring

Bertram Düring

University of Warwick - Mathematics Institute

Date Written: August 8, 2008

Abstract

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.

Keywords: Pricing kernel, stochastic volatility, asset pricing, option pricing, credit spreads

JEL Classification: G12, G13

Suggested Citation

Düring, Bertram, Asset Pricing under Information with Stochastic Volatility (August 8, 2008). Available at SSRN: https://ssrn.com/abstract=1212323 or http://dx.doi.org/10.2139/ssrn.1212323

Bertram Düring (Contact Author)

University of Warwick - Mathematics Institute ( email )

Zeeman Building
Coventry, CV4 7AL
United Kingdom

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