Equilibrium asset pricing under the Lévy process with stochastic volatility and moment risk premiums

Xinfeng Ruan, Wenli Zhu, Jiexiang Huang and Jin E. Zhang

Economic Modelling, 2016, vol. 54, issue C, 326-338

Abstract: In this paper, we extend Zhang, Zhao and Chang's (2012) production-based equilibrium asset pricing model from a jump diffusion setting to a Lévy process with stochastic volatility. This paper is a further extension of Fu and Yang (2012), which is under a Lévy process with a constant volatility. Using newly developed closed-form formulas of equity premium and pricing kernel, we are able to price Schouten's (2005) moment swaps analytically. Numerical results show that our pricing formula performs very well. Our model explains Zhao, Zhang and Chang's (2013) empirical observations on moment risk premiums.

Keywords: Equilibrium asset pricing; Moment risk premiums; Moment swaps; Lévy process; Stochastic volatility (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:54:y:2016:i:c:p:326-338

DOI: 10.1016/j.econmod.2015.12.030

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