Transform Analysis and Asset Pricing for Affine Jump-Diffusions

43 Pages Posted: 3 Apr 1999

See all articles by Darrell Duffie

Darrell Duffie

Stanford University - Graduate School of Business; National Bureau of Economic Research (NBER)

Jun Pan

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); National Bureau of Economic Research (NBER); China Academy of Financial Research (CAFR)

Kenneth J. Singleton

Stanford University - Graduate School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: March 25, 1999

Abstract

In the setting of "affine" jump-diffusion state processes, this paper provides an analytical treatment of a class of transforms, including various Laplace and Fourier transforms as special cases, that allow an analytical treatment of a range of valuation and econometric problems. Example applications include fixed-income pricing models, with a role for intensity-based models of default, as well as a wide range of option-pricing applications. An illustrative example examines the implications of stochastic volatility and jumps for option valuation. This example hightlights the impact on option 'smirks' of the joint distribution of jumps in volatility and jumps in the underlying asset price, through both jump amplitude as well as jump timing.

JEL Classification: C10, G13

Suggested Citation

Duffie, James Darrell and Pan, Jun and Singleton, Kenneth J., Transform Analysis and Asset Pricing for Affine Jump-Diffusions (March 25, 1999). Available at SSRN: https://ssrn.com/abstract=157733 or http://dx.doi.org/10.2139/ssrn.157733

James Darrell Duffie (Contact Author)

Stanford University - Graduate School of Business ( email )

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National Bureau of Economic Research (NBER)

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Jun Pan

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
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Shanghai, 200030
China

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Kenneth J. Singleton

Stanford University - Graduate School of Business ( email )

Knight Management Center
655 Knight Way
Stanford, CA 94305-7298
United States
650-723-5753 (Phone)

HOME PAGE: http://www.stanford.edu/~kenneths

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