Asset Pricing Under Information with Stochastic Volatility

Bertram Düring

No 08-04, CoFE Discussion Paper from Center of Finance and Econometrics, University of Konstanz

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.

New Economics Papers: this item is included in nep-dge and nep-ore
Date: 2008-08-01
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Related works:
Journal Article: Asset pricing under information with stochastic volatility (2009)
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