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Transform Analysis and Asset Pricing for Affine Jump-Diffusions

Darrell Duffie, Jun Pan and Kenneth Singleton

No 7105, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G1 (search for similar items in EconPapers)
Date: 1999-04
New Economics Papers: this item is included in nep-fin
Note: AP
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Published as Duffie, Darrell, Jun Pan and Kenneth Singleton. "Transform Analysis And Asset Pricing For Affine Jump-Diffusions," Econometrica, 2000, v68(6,Nov), 1343-1376.

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Journal Article: Transform Analysis and Asset Pricing for Affine Jump-Diffusions (2000)
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