Equilibrium approach of asset and option pricing under Lévy process and stochastic volatility
This paper studies the equity premium and option pricing under the general equilibrium framework taking into account stochastic volatility. We establish analytical expressions for the equity premium and pricing kernel of the stock process. Moreover, the equilibrium option pricing formula is derived...
| Main Authors: | , , , |
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| Format: | Journal Article |
| Published: |
Sage Publications
2017
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| Online Access: | http://hdl.handle.net/20.500.11937/54528 |
| _version_ | 1848759393993097216 |
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| author | Li, S. Zhou, Y. Wu, Yong Hong Ge, X. |
| author_facet | Li, S. Zhou, Y. Wu, Yong Hong Ge, X. |
| author_sort | Li, S. |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | This paper studies the equity premium and option pricing under the general equilibrium framework taking into account stochastic volatility. We establish analytical expressions for the equity premium and pricing kernel of the stock process. Moreover, the equilibrium option pricing formula is derived by the Fourier transformation method. Numerical results show that our model is superior to the previous model with constant volatility in explaining some financial phenomena, such as negative variance risk premium, implied volatilities and negative skewness risk premium. As the price of the underlying asset is modeled as the exponential of the Lévy process with stochastic volatility, our model is more general than the existing equilibrium pricing models. |
| first_indexed | 2025-11-14T09:59:11Z |
| format | Journal Article |
| id | curtin-20.500.11937-54528 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T09:59:11Z |
| publishDate | 2017 |
| publisher | Sage Publications |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-545282017-11-13T06:52:28Z Equilibrium approach of asset and option pricing under Lévy process and stochastic volatility Li, S. Zhou, Y. Wu, Yong Hong Ge, X. This paper studies the equity premium and option pricing under the general equilibrium framework taking into account stochastic volatility. We establish analytical expressions for the equity premium and pricing kernel of the stock process. Moreover, the equilibrium option pricing formula is derived by the Fourier transformation method. Numerical results show that our model is superior to the previous model with constant volatility in explaining some financial phenomena, such as negative variance risk premium, implied volatilities and negative skewness risk premium. As the price of the underlying asset is modeled as the exponential of the Lévy process with stochastic volatility, our model is more general than the existing equilibrium pricing models. 2017 Journal Article http://hdl.handle.net/20.500.11937/54528 10.1177/0312896215619966 Sage Publications restricted |
| spellingShingle | Li, S. Zhou, Y. Wu, Yong Hong Ge, X. Equilibrium approach of asset and option pricing under Lévy process and stochastic volatility |
| title | Equilibrium approach of asset and option pricing under Lévy process and stochastic volatility |
| title_full | Equilibrium approach of asset and option pricing under Lévy process and stochastic volatility |
| title_fullStr | Equilibrium approach of asset and option pricing under Lévy process and stochastic volatility |
| title_full_unstemmed | Equilibrium approach of asset and option pricing under Lévy process and stochastic volatility |
| title_short | Equilibrium approach of asset and option pricing under Lévy process and stochastic volatility |
| title_sort | equilibrium approach of asset and option pricing under lévy process and stochastic volatility |
| url | http://hdl.handle.net/20.500.11937/54528 |