Leverage and feedback effects on multifactor Wishart stochastic volatility for option pricing

Manabu Asai and Michael McAleer

Journal of Econometrics, 2015, vol. 187, issue 2, 436-446

Abstract: The paper proposes a general asymmetric multifactor Wishart stochastic volatility (AMWSV) diffusion process which accommodates leverage, feedback effects and multifactor 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 effects; Feedback effects; Multifactor model; Option pricing (search for similar items in EconPapers)
JEL-codes: C32 C51 G13 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Leverage and Feedback Effects on Multifactor Wishart Stochastic Volatility for Option Pricing (2013)
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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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:187:y:2015:i:2:p:436-446

DOI: 10.1016/j.jeconom.2015.02.029

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