Leverage and Feedback Effects on Multifactor Wishart Stochastic Volatility for Option Pricing

Manabu Asai and Michael McAleer

No 840, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: The paper proposes a general asymmetric multifactor Wishart stochastic volatility (AMWSV) di usion process which accommodates leverage, feedback e ects and mul- tifactor for the covariance process. The paper gives the closed-form solution for the conditional and unconditional Laplace transform of the AMWSV models. The paper also suggests estimating the AMWSV model by the generalized method of moments using information not only of stock prices but also of realized volatilities and co- volatilities. The empirical results for the bivariate data of the NASDAQ 100 and S&P 500 indices show that the general AMWSV model is preferred among several nested models.

Keywords: Multivariate Stochastic Volatility; Wishart Process; Leverage E ects; Feedback Effects; Multifactor Model; Option Pricing. (search for similar items in EconPapers)
JEL-codes: C32 C51 G13 (search for similar items in EconPapers)
Pages: 31pages
Date: 2013-01
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Citations: View citations in EconPapers (5)

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http://www.kier.kyoto-u.ac.jp/DP/DP840.pdf (application/pdf)

Related works:
Journal Article: Leverage and feedback effects on multifactor Wishart stochastic volatility for option pricing (2015)
Working Paper: Leverage and Feedback Effects on Multifactor Wishart Stochastic Volatility for Option Pricing (2013)
Working Paper: Leverage and Feedback E ects on Multifactor Wishart Stochastic Volatility for Option Pricing (2013)
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