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Transform Analysis and Asset Pricing for Affine Jump-Diffusions

45 Pages Posted: 11 Jun 2000  

Darrell Duffie

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

Jun Pan

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA); 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: April 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 intensityy-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 highlights the impact on option 'smirks' of the joint distribution of jumps in volatility and jumps in the underlying asset price, through both amplitude as well as jump timing.

Suggested Citation

Duffie, Darrell and Pan, Jun and Singleton, Kenneth J., Transform Analysis and Asset Pricing for Affine Jump-Diffusions (April 1999). NBER Working Paper No. w7105. Available at SSRN: https://ssrn.com/abstract=227333

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

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA) ( email )

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National Bureau of Economic Research (NBER)

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China Academy of Financial Research (CAFR)

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Kenneth J. Singleton

Stanford University - Graduate School of Business ( email )

Knight Management Center
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HOME PAGE: http://www.stanford.edu/~kenneths

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