Leverage and Feedback E ects on Multifactor Wishart Stochastic Volatility for Option Pricing

Manabu Asai and Michael McAleer

No 2013-02, Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

Abstract: The paper proposes a general asymmetric multifactor Wishart stochastic volatility (AMWSV) diusion process which accommodates leverage, feedback efects 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 covolatilities. 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 Eects; Feedback Effects; Multifactor Model; Option Pricing. (search for similar items in EconPapers)
JEL-codes: C32 C51 G13 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2013
New Economics Papers: this item is included in nep-ore
Note: The authors are most grateful to Yoshi Baba and Christian Hafner for very helpful comments and suggestions. The first author acknowledges the financial support of the Japan Ministry of Education, Culture, Sports, Science and Technology, Japan Society for the Promotion of Science, and Australian Academy of Science. The second author is most grateful for the financial support of the Australian Research Council, National Science Council, Taiwan, and the Japan Society for the Promotion of Science. Address for correspondence: Faculty of Economics, Soka University, 1-236 Tangi-cho, Hachioji, Tokyo 192-8577, Japan.
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https://eprints.ucm.es/id/eprint/17700/1/1302.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 Effects on Multifactor Wishart Stochastic Volatility for Option Pricing (2013)
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